Two Chinese state-owned carmakers, Guangzhou Automobile Group (GAC) and FAW Group, are weighing a restructuring that could integrate their joint venture operations with Japanese giant Toyota, industry insiders say, following Beijing’s call for consolidation amid weakening domestic demand.
GAC planned to acquire part of FAW’s equity in a joint venture vehicle manufacturer through a share issuance and raise supporting funds, the Guangzhou-based carmaker said in an exchange filing on Monday night, following a full-day trading halt.
The target asset involved a foreign-listed company, but GAC did not disclose its name or the deal value. The deal remained in the planning stage, subject to internal approvals and regulatory clearance, GAC said.
Analysts and mainland media reports said the target company was FAW’s joint venture with Toyota.
“From a strategic and synergy perspective, a Toyota-related target is more likely,” said Claire Yuan, director of corporate ratings for China autos at S&P Global Ratings, in a reply to the South China Morning Post.
“This transaction could resolve the long-standing competition between GAC-Toyota and FAW-Toyota.”
Yuan added it would mark a critical move for state-owned enterprises, which had largely lagged in the transition to electric vehicles (EVs).
GAC has joint ventures with Toyota and Honda, while FAW – which is controlled directly by the central government – partners with Toyota, Volkswagen and Audi.
The deal is expected to set an important precedent for cross-regional consolidation among central and local carmakersChina International Capital Corporation
The deal aimed to “promote the optimal integration of industrial resources among local and central state-owned enterprises, and enhance operational efficiency of listed companies,” GAC said in the filing.
Investment bank China International Capital Corporation said in a research note on Tuesday that if the restructuring went through, it was “expected to set an important precedent for cross-regional consolidation among central and local carmakers, send a positive signal of ‘anti-involution’, and help improve market sentiment”.
Involution, or neijuan, refers to excessive competition, where more resources are invested without increasing returns or reinvestment in research and development.
GAC’s Hong Kong-listed shares closed 2.6 per cent higher on Tuesday. Trading in its Shanghai shares remained suspended.
The announcement followed a pledge by the Ministry of Industry and Information Technology – China’s industrial watchdog – and eight other agencies on Friday to intensify efforts to promote mergers, reorganisations and cross-regional integration among carmakers, while advancing reforms towards group-based management.
Despite strong exports, China’s domestic vehicle sales have slowed sharply after years of rapid growth and subsidy withdrawal, squeezing profitability.
Retail sales fell 20.8 per cent year on year to 11.7 million units in the first eight months of the year, while profit margins shrank by 1 percentage point to 3.6 per cent in the January-July period, data from the China Passenger Car Association (CPCA) showed.
Joint ventures between local and foreign carmakers, which once dominated the mainland market, have struggled amid China’s rapid shift towards EVs.
In August, joint venture retail sales of petrol-powered cars and EVs plunged 35 per cent year on year to some 310,000 units, accounting for just 4.3 per cent of China’s EV market, according to CPCA.
Squeezed by domestic EV makers like BYD, GAC’s net loss in the first half of the year widened 76 per cent year on year to 4.5 billion yuan (US$670 million).
