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China's Plan to Create a Giant State-Owned Automaker

February 12, 2018

China's Plan to Create a Giant State-Owned Automaker

Over the last few years, the steelmaking, railway equipment, and coal mining industries have been consolidated by the government in Beijing. Decreasing costs, making a profit, and creating new products were all goals of this project. 

Now, this trend is making its way to the Chinese auto industry. In December of 2017, three state-owned automakers revealed that they will be sharing technology, platforms, purchasing, and powertrains, with the creation of a global auto giant as their goal. 

China FAW Group, Dongfeng Motor, and Chongqing Changan Automobile are the three automakers joining forces. An agreement was signed on December 1, 2017, between all three. Included in this agreement was a plan for their venture. 

In the beginning, the companies will create an R&D center that will be responsible for technology development for electric vehicles, connectivity, and lightweight materials. The next step will be to develop platforms, coordinate purchases, and share production. 

Additional plans include coordinating vehicle production, distribution, and foreign partnerships overseas. Consumer loans and car-sharing are also found in their business plans. 

Even though each of these well-known Chinese companies sent top executives to sign the agreement, the word merger has never been mentioned. However, their plans are seen as a merger by many business and auto experts. 

The evidence of a merger is clear in their partnership including all of the important aspects of their operations and it is implied in the joint statement released by FAW, Dongfeng, and Changan. The statement expresses that this venture is a new exploration that will help execute the Chinese government’s long-term plans to consolidate its auto industry. The government’s plan was drafted in April of 2017 and encourages domestic companies to jump on board with the world’s top 10 auto manufacturers. 

Skeptics are abound as to whether this merger of sorts between the three automakers will actually happen. They do have reason to doubt. BAIC Motor Group and Fujian Motor Industry group had a signed agreement for acquisition. With BAIC being under the control of the Beijing government and Fujian being owned by the Fujian provincial government, a bureaucratic turf war broke out and the merger fell through. 

To the relief of many, there are no issues of this sort with this recent merger. With all three companies being government-owned, if the government wants it to happen, it will see to it that it does happen. 

Merging three companies into one is no small task as they each have similar products and hundreds of thousands of employees. However, all three of the involved companies appear to want to move forward with this deal sooner rather than later in order to not miss out on profits and their large share of the auto market.

Tags: China , Auto