China to launch supportive policy on export

China’s automobile industry is on the rise as the domestic vehicle, parts and components corporations have joined the tide of overseas mergers and acquisitions. At the same time, the government authorities have quietly changed their attitude to overseas acquisitions, transforming the caution treatment in the first half of this year to issuing supportive policies. A number of high-level staffs of the foreign auto giants have expressed in interviews that that China’s auto industry is the beneficiary of this financial crisis and that China is gradually becoming the fourth pole among the global automotive industry.

　　Overseas M & A of automotive industry spring up

A piece of news is spreading that Ningbo Huaxiang is considering overseas acquisitions. CFO of Ningbo Huaxiang, Jin Liangkai also has said that the company is intended to conduct an international mergers and acquisitions. It is expected to be successful next year. Now Ningbo Huaxiang has already raised enough cash. In August and September, Ningbo Huaxiang had successively sell 73.80% stake of external LuPing machinery and 29% stake in Fawer Company, obtaining about 6.8 billion. At present, the cash of Huaxiang has reached to about 1 billion Yuan including its original 200 million Yuan.

Previously, China’s largest overseas merger of auto parts finally became immortal. November 2nd, Beijing Jingxi Heavy industry formally signed a contract to buy damping and braking operations business of U.S. Delphi. Fang Jianyi, chairman of the Beijing Jingxi Heavy Industry said it would pay no more than 90 million U.S. dollars to acquire Delphi’s machinery and equipment, intellectual property and customers and product supply contract of related businesses.

Half a month ago, good news of the biggest foreign acquisition of domestic automobile enterprises came. In October 28, the U.S. Ford Motor Co. officially announced that China’s private auto company Zhejiang Geely Holding Group became the preferred bidder of Volvo Car Corporation. In November, for the first time Li Shufu, Chairman of Geely Auto Group publicly responded to bid for Ford’s Volvo brand matter. Li said they had confident to achieve this transaction.

Another vehicle company BAIC already surged out their enthusiasm to overseas mergers and acquisitions. On the evening of September 9th, news from Sweden and China indicated that the Swedish sports car corporation Koenigsegg and China’s BAIC has signed a memorandum of understanding on the Saab that Koenigsegg would acquire 100% stake of Saab while BAIC can become a small shareholder of Koenigsegg through asset-for-equity approach, indirectly involved in the acquisition of Saab In November 11, Wang Dazong, general manager of BAIC said that the acquisition of Saab was moving forward steadily. What’s more, they would strive to complete the acquisition before the end of 2009. It is reported that this is just one step of BAIC’s overseas acquisitions. It may have more action in the future.

At the same time, laymen of automotive also join into the tide of overseas acquisitions. In October 9th, General Motors, and the Tengzhong Heavy Industry in Sichuan officially announced that they had signed a final agreement to buy GM’s high-class Hummer business. Although there is no official approval to this acquisition, but both Tengzhong and Hummer vehicles seem confident.

　　New supportive policies of the government

At the same time, the government authorities have quietly changed their attitude to overseas acquisitions, transforming the caution treatment in the first half of this year to issuing supportive policies.

In November 15th, at the 3rd International CEO Roundtable of Chinese and Foreign Multinational Corporations, Chen Jian, the Vice Minister of the Ministry of Commerce pointed out that they would introduce new policies and measures to encourage qualified Chinese enterprises to actively carry out foreign investments and cross-border operations, continuously expanding new areas and new ways of foreign investments and cooperation. In particular, speed up the system construction to the build of the legal and institutional framework of going global as well as to further deepen the reformation management mechanism with the core of investment facilitation so as to provide legal protection to businesses in the course of going global.

Before the introduction new support policies, the competent departments have drawn up ambitious goal of going global. Citing an undisclosed source from Shanghai Securities News, in November 11th , six ministries Ministry of Commerce, Development and Reform Commission, the Ministry of Industry and Information Technology , the Ministry of Finance, Customs Department and the General Administration of Quality Supervision, Inspection and Quarantine jointly issued their opinions on promoting China’s auto exportation to develop continuously and healthily, views explicitly putting forward the export targets of cars and parts, which was, striving to achieve an average annual increase of 10%from 2009 to 2011and the total trade volume of China’s cars and auto parts exportation account for 10%of the whole world in 2020. People within the industry take M&A the best way of going global.

　　Four major trends in overseas mergers and acquisitions

Looking at several overseas acquisitions cases this year, we can easily find similarity among them. First, the form is being transformed from simple acquisition of overseas factories to global sales channels. After Beijing Jingxi Heavy Industry mergers Delphi’s damping and braking operations, the former will obtain the latter’s 13 chassis parts producing and processing base and Technology Center the latter in the United States, Poland, France, Britain, Mexico, China and other places and at the same time undertake the supply channels for BMW, Audi, Ferrari and General Motors and other car firms.

Vice President of Foton Automobile Dong Haiyang found another trend of overseas acquisitions. Dong viewed that as pressure of domestic overcapacity occurs, China’s auto need the concept of globalization. Therefore, these Chinese enterprises should pay more attention to cross-border integration. BAIC now can not wait to plan to localize the Saab. It announced intention to buy the production lines and production ownership of old models 9-5 sedan, and will start production in its Beijing factory in April 2010. Geely Automobile is aim at the international arena. It wants to take advantage of low cost in China to produce parts of Volvo cars and ultimately achieve the goal to promote the sales of Volvo cars reach the number 1 million units within the whole world.

　　Private auto companies become ‘more valuable’

When Geely is busy with overseas acquisitions the stock market has been especially favored this private automobile enterprise. The Unit continually rose to a closing price of 3.43 Hong Kong dollars in November 16, 2009 from the lowest of 0.15 Hong Kong dollars in October 30, 2008 , with a high rise of 22.8-fold. Geely has become an incubation platform of multimillionaires.

Set aside Li shufu, who was previously a billionaire, calculating the shares held and options after the power-line basis, the equity net worth of several executives within Geely has reached more than 10 million Hong Kong dollars. Among them, president Yang Jian and Gui shengyu, chief executive and executive director rank first, with a assets of 62.42 million Hong Kong dollars; the vice president Zhao Fuquan ranks second with 52.52 million Hong Kong dollars while the vice president Liu Jinliang and Zhao Jie rank third with 48.25 million Hong Kong dollars.

Different from BYD got a huge development because of the Warren Buffett took the shares, Geely is more a reflection of the recognition international world hold to the future of Chinese automobile enterprises. The newly released PricewaterhouseCoopers study AUTOFACTS has pointed out that China will replace the global leader in vehicle industry, becoming the largest light-vehicle manufacturer in 2009. In the future China will continue to maintain this leadership position. A number of high-level staffs of the foreign auto giants have expressed in interviews that that China’s auto industry is the beneficiary of this financial crisis and that China is gradually becoming the fourth pole among the global automotive industry.（translator：Yalong/ Jessie）

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