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China Mulls Debuting Largest Carmaker
Preparations on initiating China's largest automobile assets reorganization are proceeding between the US-based General Motors, China's leading automaker -- Shanghai Automotive Group Corp. and the Liuzhou Wuling Auto Co.
The move is anticipated as a way to beef up China's automobile industry in advance of a round of intensified competition brought by the country's accession into the World Trade Organization, according to Shen Yang, manager of the Wuling Auto.
"The 2 billion-yuan assets realignment scheme through the capital market is very likely to be recorded in Harvard's business casebook," he said.
Under an agreement on assets division reached by the three parties, General Motors would buy 34 percent of Wuling's shares after the minibus manufacturer goes listed on Shanghai's B-share market.
Shanghai Automotive would acquire 50.1 percent of Wuling's state-owned shares to have the controlling role in the planned share-holding company.
The proposal was submitted for ratification with the State Economic and Trade Commission and the China Securities Regulatory Commission in December last year.
Official sources with the government of the Guangxi Zhuang Autonomous Region, where Wuling's plant is located, said that the auto assets restructuring scheme can expect a green light from Beijing within the year.
"The tuning scheme will lift Wuling's annual turnout of family cars from the present 200,000 units to 400,000 units, and will be finally targeted at one million units," said Xu Kuangdi, mayor of Shanghai.
The project will also allow Shanghai Automotive to team up with world-class carmaker GM to further strengthen its dominating stand on the domestic automobile market, which is presently 40 percent.
Located in southwest China, the new company based in Wuling's plant in Guangxi will be turned into China's largest family car manufacturing base. The introduction of the abundant capital, advanced technology and elite managerial techniques from the "big brother" in China's coastal region and the U.S. partner will help improve the economy in China's western region and push it on a track of globalization.
Facing globalization, China's automobile sector has its own weaknesses such as small scale, irrational allocation of resources, and low efficiency.
A majority of domestic auto makers cannot rival foreign companies at present. Despite domestic mergers and restructuring, reorganization and co-operation with foreign competitors are the best way out for China's auto industry.
"The WTO entry will speed up reorganization of China's auto industry and will lead to further cooperation with global auto makers," said Zhang Suixin, vice president of Volkswagen (China) Co. Ltd.
The restructuring of China's auto industry has been developing swiftly with a number of auto joint ventures bringing in such big names as Swedish Volvo, German Volkswagen, American Ford, DaimlerChrysler and the French Citroen in recent years.
"As the world's largest automaker, GM is willing to expand its exposure in China through cooperation with Chinese partners to build a world-class auto conglomerate," said Philitf Murtaugh, president of GM China during his recent visit of Wuling Auto.
China is valued by international auto manufacturers as "the world's largest remaining auto market," and they are eager to snatch a piece of the "cake." GM's involvement in the Wuling assets restructuring plan will secure it a 15 percent foothold in China's compact car market.
Some 240,000 Chinese families realized their dreams of owning a car of their own last year, and by the end of last year, more than 26 million Chinese had obtained driving licenses.
However, the present compact car market is in a slump. Sales last year totaled about 600,000 units, compared with the combined car production capacity of 1.17 million units in the country.
"Prices are still too high for ordinary people. The high production costs caused by the small production scale have resulted in slow sales of family cars," said Zhang Shiduan general manager of China Shenlong Auto Co. Ltd.
Although the prices of Chinese cars are usually twice the international prices, an official survey showed that some 26 million Chinese or 20 percent of the families in Chinese cities and townships would like to have their own cars. The demand is equal to the world's total annual automobile output.
In the country's Tenth Five-Year Plan (2001-2005), the sale of cars to households is first ever encouraged.
With the development of the individual consumption credit system, China's car market has huge potential, said Yu Zuyao, an economist with the Economic Research Institute under the Chinese Academy of Social Sciences.
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