HONG KONG • China’s automobile bailout marks a worrying shift into reverse gear. Beijing has awarded FAW Group, the state-owned maker of late chairman Mao Zedong’s limousine, a US$144-billion (S$199-billion) credit score line price virtually as a lot as the entire of Toyota.
Propping up this struggling large could assist rescue China’s rust belt, however an emboldened FAW will now be much less prone to promote companions like Volkswagen controlling stakes in joint ventures.
Worse, supporting the company towards stronger native rivals might unbalance overdue consolidation.
As producer of the “Red Flag” marque that sometimes ferries officers round Beijing, FAW can declare a sure affection within the halls of the Zhongnanhai management compound. At dealerships, not a lot.
Although its joint ventures with Volkswagen, Toyota and Mazda make a few of the nation’s hottest passenger autos, its personal automobiles have typically undersold these produced by home rivals.
Loss-making Tianjin FAW Xiali, one in all FAW’s two listed entities, bought lower than 1,000 autos final month.
Part of the rationale for the beneficiant cheque is likely to be the political drawback brewing in China’s automotive trade. A liberalisation permitting abroad teams to purchase management of joint ventures might see traders flee home producers.
When Brilliance introduced that it will let BMW take over its three way partnership this month, for instance, its shares tanked; traders noticed little worth left over.
Such weak point buttresses the case for offloading joint ventures to overseas companions and utilizing the funds raised to develop aggressive home-grown designs, whereas consolidating the variety of native gamers.
To that finish, analysts count on Beijing to marry FAW with Ford’s jointventure accomplice, Changan, and Dongfeng, which works with Nissan and Honda. They would create a large that might churn out 10 million items a yr.
Before Thursday’s injection, FAW would most likely have come final on this construction, given restricted nostalgia for Red Flag limos. But officers’ concern over labour unrest in struggling north-eastern China, the place the group has an enormous manufacturing footprint, could have given the old-school participant larger clout.
With US$144 billion on name from China’s largest state banks, FAW can resist any proposed value cuts – preserving jobs on the expense of effectivity. Chinese carmakers would possibly get larger, however that is no technique to make them higher.