Internationalplayers next year will be allowed to operate wholly owned subsidiaries inChina’s auto industry.

Production in Tesla's China plant.

SHANGHAI-- A slew of foreign automakers downsized their China operations in recentyears.

Moreof them plan to do so: Mazda Motor Corp. will merge its two joint ventures intoone while Stellantis has decided to close one of the two local plants for the Jeepbrand.

Andnext year, international players will be allowed to operate wholly ownedsubsidiaries in China’s auto industry.

Butlet’s be clear: This does not mean the Chinese auto industry is on the verge ofan imminent shakeup – even as the government this week began to signal interestin seeing consolidation, particularly in the electric vehicle market.

Theprimary factor that has pushed several global automakers to pare localproduction is competition.

Theworld’s largest auto market is also the world’s most crowded market, where manyforeign and domestic Chinese brands have long been competing neck-and-neck formarket share.

Unableto fend off the competition, several global players have found themselvesoperating well under production capacity in China since the mid-2010s.

Inthe past few years, Hyundai Motor Group has closed two of its seven plants inChina, while PSA Peugeot Citroen, now part of Stellantis, has wound up its JVwith Changan Automobile Co. and slashed production at its partnership withDongfeng Motor Group.

Lastyear, Renault SA also closed its gasoline car JV with Dongfeng.

Butone thing worth noting is that except for Suzuki Motor Corp., which closed itsonly JV in 2018, none of the other international auto manufacturers plan toexit the Chinese market despite the troubles they face.

Thesecompanies are striving to turn around their China businesses. Stellantis saidit has made some progress on that front: in the first half of this year, its JVwith Dongfeng generated a positive cash flow.

EVimpact

Whilecurtailing production of traditional vehicles, they are also seeking to boostlocal output of EVs.

Hyundaiis now upgrading its commercial vehicle plant, in Ziyang of southwest China’sSichuan province, to enable it to churn out hybrid, full electric and fuel celltrucks.

Whileoperating a light commercial vehicle JV with Brilliance China, Renault hasestablished EV partnerships with Dongfeng and Jiangxi Jiangling Group ElectricVehicle in the past few years.

InAugust, the French automaker signed a framework agreement with Geely HoldingGroup on building and selling hybrid vehicles in China.

Futurepartnerships

In2018, Beijing announced that it would permit foreign automakers to run whollyowned subsidiaries in China starting 2022.

Onemight think the move would prompt global players to ditch their local partners.But it appears to be having the opposite effect.

BMWGroup, while producing BMW-badged vehicles with Brilliance China, struck a dealwith Great Wall Motor Co. in 2018 to build EVs for the Mini marque in China.This move came a year after Volkswagen Group signed up its third joint venturepartner -- Jianghuai Automobile Co.

Moreover,while assembling Mercedes-Benz vehicles with BAIC Motor Co., Daimler last yearinked an agreement with Geely to produce EVs for Smart brand, which will besold in and outside China.

Withvehicle electrification forging ahead, EVs and plug-in hybrids accounted fornearly 11 percent of new-vehicle sales in China for the first eight months of2021, up from 5.4 percent in 2020.

Butwith few players willing to depart, it’s a safe bet to conclude thefast-changing market will remain as fragmented as ever for the foreseeablefuture.