China Is Restructuring the Automotive Industry

As we reported several times over the last few weeks, rumors about Chinese companies taking interest into the acquisition of foreign automotive brands such as Volvo, together with the growing economic distress, has determined the Chinese government to take action and restructure its oversized automotive industry.

China is overcrowded with car manufacturers, in excess of 100 companies being actively involved in the industry. Talk about restructuring them has been around for some time now, but the first official measures to be taken have surfaced these past few days, reported.

"The problem with China is we have too many players fighting each other at the lower end but none has the clout to compete globally," Zhang Xin, Guotai Junan Securities analyst told news agency Reuters at the beginning of the month.

The Chinese State wants to reduce the number of manufacturers to two or three large domestic groups, set to emerge over the next three years, each of them having a production target of at least 2 million units. In addition, four or five other smaller groups, with production of at least 1 million units will be set up.

The government named only four groups that should consider expanding through merger and acquisition: First Automotive Works (FAW), Dongfeng Motor, SAIC and Changan Auto. It will be up to them to meet the government's forecasts of 10 million units sold this year and a growth of 10 percent/year over the next three years.

The growth proposed by state officials is to be achieved by expanding sales of small displacement vehicles (less than 1.5l), as they will account for roughly 40 percent of total car sales, with the mini segment covering 15 percent.

Adjacent industries will be called upon to support the governments plans. China wants four or five major steel manufacturers to account for some 45 percent of the national output by 2011.
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About the author: Daniel Patrascu
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Daniel loves writing (or so he claims), and he uses this skill to offer readers a "behind the scenes" look at the automotive industry. He also enjoys talking about space exploration and robots, because in his view the only way forward for humanity is away from this planet, in metal bodies.
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