Developing and Investing in Automotive Production in China

The growth of automobile production and sales in China, particularly in the realm of alternative fuel vehicles (New Energy Vehicles or NEVs), has been nothing short of explosive, experiencing a nearly 1,000-fold increase between 2011 and 2018. The country now produces hundreds of thousands of these vehicles annually and the industry consequently has drawn intense interest from non-Chinese investors.

Doing business in China presents unique challenges to foreign investors, joint venture partners, and others seeking to interact with Chinese automobile producers. Those interested in becoming part of the highly successful Chinese automobile production industry should pay close attention to a range of complex factors in order to protect their investments and maximize opportunities.

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Key Takeaways

• Investors must seek to obtain contractual protections. Key provisions in any such contracts worthy of special notice include anti-corruption warranties, audit rights, compliance certifications, and indemnity and termination clauses.
• Those contemplating investments should carefully review incentive arrangements with third parties for, among other considerations, anti-competitive effects.
• Reasonable delays, issues regarding costs, and the complexity of shipping electric vehicle (EV) parts to desired markets should be anticipated. Unplanned lags can multiply the time and cost of an EV program and materially impact operations and profitability. 
•  Investors should establish internal controls and audit programs to monitor expenses for validity, genuineness, reasonableness, and transparency.