Workers put together cars on the production line at the new FAW-Volkswagen Foshan plant that opened on September 25. Photo: CFP

It appears that German carmaker Volkswagen wants to further drive its momentum in China by raising its stake in its joint venture with FAW - or FAW-Volkswagen, one of the most lucrative auto joint ventures in the country.

The desire was most recently expressed by Volkswagen's China head Jochem Heizmann, when he was interviewed by Beijing-based Economic Observer newspaper for the opening of Volkswagen and its Chinese partner FAW Group Corp's new Foshan plant that began operations on September 25 in Guangdong Province.

Over the past few months, Volkswagen has been in talks with State-owned FAW, hoping to deepen cooperation with its partner - with an eye on raising its stake in FAW-Volkswagen, the Chinese paper cited Heizmann as saying on September 27.

And just two weeks before the launch of the Foshan plant - designed to have an initial production capacity of 300,000 units per year - Volkswagen's global CEO Martin Winterkorn told German media that the company was considering upping its stake at its Chinese joint venture, FAW-Volkswagen, which makes Volkswagen's popular sedan models, including Golf, Bora and its premium brand Audi.

"One possibility would be to increase our stake in the joint venture with FAW from 40 percent to 50 percent. We are in talks about it," Winterkorn was cited by German newspaper Frankfurter Allgemeine Sonntagszeitung.

At present, FAW Group owns 60 percent of the joint venture, Volkswagen 30 percent and Audi 10 percent - not very common compared to most of its auto joint venture peers, which usually adopt a 50-50 or 51-49 structure in China.

The FAW-Volkswagen joint venture sold 799,100 units of cars in the first eight months of this year, ranking second among all car producers in China.

In August alone, the joint venture sold 114,700 units, ranking No.1 among all car producers in the country. Considering the hearty profits, it isn't hard to see why Volkswagen is after a bigger share of its joint venture in China.

Protective policy

Formed in 1991, FAW-Volkswagen was the German automaker's second joint venture in China. Its first joint venture in China, Shanghai Volkswagen, was founded together with SAIC Motor in 1985, in which Volkswagen owns a 50 percent stake. 

By 1994, when more foreign auto investors began entering the Chinese auto industry, the Chinese government formally stipulated that foreign automakers were not entitled to own a stake larger than 50 percent in a car manufacturing joint venture in China. The move was meant to protect domestic carmakers and resulted in many joint ventures adopting 50-50 or 51-49 agreements.

Volkswagen has never held back on its wishes to raise the stake in the FAW joint venture over the past few years, however. Back in 2011, media reports said that Volkswagen sought to raise its stake to 49 percent in the joint venture, but the deal never materialized.

The Global Times was unable to reach FAW Group for comment by press time, while a FAW-Volkswagen spokesman said Tuesday that he was unclear about the situation.

But a FAW Group official, cited by the Economic Observer, said that FAW Group is not aware of the news and presumes such a demand to be unrealistic.

Volkswagen also declined to comment its intentions regarding its stake at its joint venture with FAW Group, but said only that it is "currently looking at different ways to expand its collaboration (with FAW)," in an e-mailed statement to the Global Times on Thursday.

Wu Shuocheng, editor-in-chief at industry Web portal auto.gasgoo.com, told the Global Times on Monday that Volkswagen seems to be "flying a kite to see how FAW might react to its request to raise the stake."

'Not very likely'

The 25-year joint venture agreement between FAW and Volkswagen will expire in 2016, and the FAW Group is also seeking a group listing at present, which according to the Economic Observer report, has presented a "window" for Volkswagen to ask for a greater stake in the joint venture.

But analysts said that it is unlikely for FAW to agree to such a request.

"It is not a sensible move for FAW to give up the stake of such a profitable unit," Zhang Yu, managing director at industry consultancy Automotive Foresight (Shanghai) Co, told the Global Times on Monday.

But analysts said that one possible scenario is that Volkswagen may trade its technology for a larger stake. Yet Zhang noted that there is little chance of Volkswagen handing out its key technology, and if Volkswagen's offer is not tempting enough, FAW will have no reason to concede its stake.

"It is natural for Volkswagen to ask for a bigger share in the joint venture, but that's not very likely to happen in a short term," said Wu.

Even if concessions were made, a controlling stake of 51 percent in the FAW-Volkswagen joint venture would be FAW Group's absolute bottom line in the deal, as the company has to include the profitable joint venture in the listed assets of its IPO, the Economic Observer report said, citing a source close to FAW Group.

The source noted that with the controlling stake guaranteed, and with the permission of the State-owned Assets Supervision and Administration Commission of the State Council, it is still possible for FAW Group to sell a 9 percent stake to Volkswagen.

Despite heated talks over the stake, however, cooperation between the two companies is not expected to change, according to Zhang, reasoning that Volkswagen has invested heavily in China with FAW and it cannot afford to lose its major partner now.

"The Volkswagen Group and FAW Group intend to extend their joint venture contract beyond the 2016 expiry date," Volkswagen said in the e-mail to the Global Times.

Needless to say, as analysts point out, the Foshan plant reaffirms the latest move of the German automaker, together with FAW Group, to boost its presence in the increasingly attractive Chinese market, in which Volkswagen is expected to reach sales of 3 million units this year.

A fair and balanced partnership?

Talks over the past few years question whether the 50 percent-stake cap for foreign automakers in cooperation with domestic car producers should be revisited.

In other sectors of the automobile industry, such as auto parts and auto financing, no such criteria exists. Experts have also noted that the 50 percent rule has not guaranteed domestic companies a stronger say in their joint venture, as vehicle models, brand superiority and industry knowledge still belong to foreign companies.

But analysts assert that it is important for domestic auto producers to hold onto the 50 percent-requirement to maintain their market share.

"It is unlikely for the government to drop the 50 percent requirement any time soon," said Wu Shuocheng, editor-in-chief at industry Web portal auto.gasgoo.com, pointing out that domestic auto parts makers only now have a share in the lower-end market, while their foreign peers maintain control over the high-end sector.