Mon, Dec 31, 2007 page11

• Automakers merge amid sizzling Chinese market

  • AFP
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  The merger of two of China's state-run automakers comes as its domestic market booms and as the quickly accelerating nation gears up to compete with top global brands, industry officials said.

  The merger announced on Wednesday between Shanghai Automotive Industry Corp (SAIC, 上海汽車), one of China's largest car groups, and rival Nanjing Auto (南京汽車) is one of the biggest-ever tie-ups between Chinese vehicle makers.

  The deal is aimed at building the group up into a "world-class" company, SAIC chairman Hu Maoyuan (胡茂元) said at the signing ceremony.

  "China's automotive industry needs to raise its capability to reinvigorate itself and find its own area where it can compete internationally, this is why we must go down the road of mergers," he said.

  The SAIC buyout came amid government calls for local car companies to consolidate and end a fierce rivalry that had worsened when SAIC and Nanjing both bought parts of Britain's MG Rover.

  In the deal, Shanghai-based SAIC will pay 2.1 billion yuan (US$287 million) to Nanjing Auto's parent, Yuejin Motor (躍進汽車), in exchange for the vehicle and core auto parts assets of Nanjing Auto, which owns the MG car brand.

  In return, Yuejin Motor will receive 320 million SAIC Motor shares from its parent SAIC -- which bought the rights to two Rover models in 2005 -- equivalent to about 5 percent of the listed company.

  The deal comes as Chinese auto sales are likely to hit or surpass 8.7 million units this year, 20 percent more than last year, according to figures published on Saturday by the China Association of Automobile Manufacturers (中國汽車製造業協會).

  Last year, more than 7.2 million autos were sold in China, more than in Japan and second only to the US.

  Battered by skyrocketing oil prices and economic recession, European, US and Japanese auto markets are stagnating, while in China up to 10 million households are eager to buy cars as soon as incomes rise and car prices drop, according to Xinhua news agency.

  Analysts reacted warmly to the merger, which they said would strengthen the local industry as it seeks to compete with foreign rivals.

  "This is good news for SAIC and for Nanjing and the industry as a whole," said Liu Shuofeng (劉朔峰), an analyst with CEL Venture Capital (光大控股創投).

  "Consolidation among automotive companies should secure the local auto sector's future, as companies turn bigger and better to face competition," he said.

  Wang Mingcun (王明存), of TX Investment Consulting in Beijing (北京天相投資顧問), said: "China's constructors will depend on the domestic market for the coming five to 10 years, then after they develop better products they will look to foreign markets."

  China's auto exports amounted to about 1,000 units in 2003, but grew to 170,000 in 2005 -- a number higher than those imported during the year -- but largely exported only to emerging markets.

  SAIC, which is keen to build its own brand cars even though it has China-based joint ventures with General Motors and Volkswagen, wants the MG brand as a platform to boost sales internationally.

  "We will continue to promote the MG brand on the overseas market to boost our exports," SAIC Motor president Chen Hong (陳虹) said at a briefing in Beijing.

  Chen said SAIC would also revive production in Britain of the MG brand as early as possible.

  The merger came as Nanjing Auto said it was ending its sedan joint venture with Fiat of Italy, while five days before the deal was revealed, General Motors announced it would sell more than 1 million vehicles in China this year.

  The US automaker, which along with Volkswagen owns the biggest market shares in China, has become the first constructor to surpass the 1 million car barrier in a year, a feat attained largely with the help of its 10-year joint venture partner SAIC.

  GM's growth in China has been as remarkable as the nation's overall industry growth, with sales hitting 100,000 units in 2002 and growing to 500,000 vehicles by 2005.

  Meanwhile French group PSA, in a joint venture with Dongfeng Motor (東風汽車), sold 200,000 Citroens and Peugeots vehicles in China last year and expected to sell a total of 450,000 units next year and in 2009.
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