Shanghai Automotive Industry Corp (SAIC), General Motors' main joint venture partner in China, has sold its 20% stake in Chinese car manufacturer Chery, which is being investigated for pirating one of General Motors' car designs.

Shanghai Automotive Industry Corp has most likely sold its 20% stake in the company as a means of distancing itself from the controversy. SAIC should be keen to maintain smooth partner relations with GM, which is one of the largest foreign investors in China.

Chery is currently in dispute with GM for suspected plagiarism of its recently launched mini car model. General Motors initiated an investigation earlier this year following allegations of a striking resemblance between the exterior design of the new Chery QQ models and the Daewoo Matiz II, the original model on which the Chevrolet Spark was based.

GM executives have said that SAIC sold its stake in Chery back in July or August of this year. Officials at SAIC and Chery, which are owned by the governments of Shanghai and Anhui province respectively, have repeatedly denied that the sale has taken place at all.

Chery, which has denied copying any GM product, is not new to controversy. Last year Volkswagen accused the Chinese company of illegally using Volkswagen parts in Chery cars.

GM, one of the largest foreign investors in China, is determined to keep a strong foothold in the robust market, which offers tremendous opportunities. Cooperation with Chinese strategic partners has enabled GM to expand rapidly and create a strong distribution network.

Last year GM signed an agreement with SAIC and Wuling Motors to establish a joint venture, SAIC Wuling Automobile Co, in the mini-vehicle market, which is expected to the be the fastest growing segment in the country over the next five years. This three-way joint venture should help GM to expand its locally-made product portfolio.

In a continuously growing but crowded automotive market, foreign manufacturers are increasingly faced with new competition in the form of copycat cars. Governments of developing markets should make provisions to protect the intellectual property rights of foreign investors if they want to encourage further development of manufacturing plants within the country.