Tesla to pay import tariffs on cars built in planned Shanghai plant – China’s latest business and technology news

Business & Technology

A summary of the top news in Chinese business and technology for October 23, 2017. Part of the daily SupChina newsletter, a convenient package of China’s business, political, and cultural news delivered to your inbox for free. Subscribe here.

The Wall Street Journal reports (paywall) that American electric-car maker Tesla has reached a deal with the government of Shanghai to build a wholly-owned factory in the city’s free trade zone. Bloomberg was unable to confirm that a deal had been struck, but that may be because Tesla is “currently working with the Shanghai government about details of the deal’s announcement, such as timing,” the Journal indicates.

The Journal notes that “Under current rules, the cars Tesla builds in the free-trade zone would still count as imports and incur [a 25 percent tariff]. Auto analysts in Shanghai doubt the Chinese government has any incentive to give Tesla special treatment.” Yet as the New York Times explains (paywall), this deal is a coup for both sides:

  • For the government, having a foreign automaker build cars in the country while still paying tariffs on them is quite an achievement. Furthermore, “If Tesla were making cars in the Shanghai area, it would have a powerful incentive to buy many, if not most, of the parts in China, strengthening China’s base of suppliers for the fast-growing electric car industry.”
  • For Tesla, the deal signals “a breakthrough of sorts in being preliminarily allowed to have a wholly owned operation in a foreign trade zone. Honda also received permission to set up a majority owned operation in a foreign trade zone more than a decade ago, but unlike Tesla, it has been forced to export the output from that factory, mainly to Europe.”

In other new energy vehicle-related news:

  • The Wall Street Journal reports (paywall) on how “Batteries have emerged as a critical front in China’s campaign to be the global leader in electric vehicles, but foreign auto makers and experts say it is rigging the market to favor domestic suppliers.”
  • Caixin says (paywall) that a senior official with the Ministry of Finance blasted “low-quality, blind expansion” in the new energy vehicle (NEV) market, and that authorities have launched an investigation into overcapacity in that market. Caixin notes that a subsidy program has led to “widespread fraud as some companies employed a range of tricks to qualify for aid,” including passing off ordinary vehicles as new energy models by installing electric batteries, and submitting false statistics to claim subsidies.