New Policies Coming for AUTO Firms M&A

　　Cheng Jianguo: Deputy Director, Industry Coordinating Department

    Sohu Auto (Sohu): It’s been a long time for the news M&A and reorganization in auto industry. Could you talk about the so-called Four Bigs and Four Smalls? Now, the auto industry is going on the M&A and reorganization and even further. Is DSPC involved in this? If so, will DSPC give out some rules for either a market-based advance of the auto industry or also for the M&A and reorganization?

　　Cheng Jianguo (Chen): In the Adjustment and Vitalization Plan for Auto Industry, the idea of Four Bigs and Four Smalls is not the same as you mentioned. Specifically, this idea shall be Four Bigs and Four Mid-size. The top 8 auto firms is relatively stronger than others, but it does not means M&A and reorganization shall be conducted just between these eight firms or only related to these firms. Comparatively, these eight firms are of the advantage in the auto industry.

　　In such conditions, there might four small-size auto firms or even four min firms. Could these firms join in the A&M and reorganization? The answer is positive. In this sense, for example, it is possible for BYD to A&M a coach manufacturer in Changsha, Hunan. For such case of A&M, the authority can only give out a direction.

　　Sohu: It isn’t an indication of macro policy, is it?.

　　Chen: There are some specified policies and measures, such as promotion measures. Now, it seems that A&M and organization is known to everyone. One auto firm is wiped out and a new one is established. One auto firm shall be established in relation with A&M and reorganization. In the Adjustment and Vitalization Plan for Auto Industry, the last sentence says that new auto form shall be interlocked or connected with A&M and reorganization. It is one in Chinese style. It means that if any auto firm or a subsidiary is to be established, it shall be connected with A&M and reorganization and becomes an independent one with legal person. Such policy has been practiced since last year.

　　Sohu: Do you think there are still more new measures coming up?

　　Chen: Is this measure not powerful enough. This measure is giving more powerfully pressure on the auto firms. If an auto firm wants to build up a subsidiary, it has to get rid of another and the local authority even has to help do that.

　　Sohu: There shall be some detailed policies.

　　Sohu: That’s right. We have to wait.

　　Sohu: like taxation?

　　Chen: No. I don’t think the special taxation policy will be contained. The auto industry shall do nothing with taxation only, because taxation policy will be concerned with other industries. It is impossible that just one taxation is only tailored for automobile industry.

　　Sohu: In the plan, there is also one sentence: now, there are some obstructive factors that local authority might protect the local auto firm from being eliminated. Do you think it is possible?

　　Chen: Yes it is. The local authority becomes smarter and smarter. However, it is meaningless to protect a backward industry which could not produce industry productivity and job opportunities. Hunan authority is smart. For Changfeng Motors Co., Ltd, it used to be run well enough for a balanced profit, though its forecast trend might not that positive. While Guangdong Automobile Industry Group Co., Ltd. applied for A&M, Hunan authority gave out its great support. It depends whether the local authority is wise enough in respect of this policy. They shall be better. Even though there could be some protection measure taken by the local authorities, these measure shall not be sustainable. For any protection measures, the financial support is essential. No local authority is financially strong enough to protect an auto firm. None of local authority could support the auto industry with its own revenue.

　　Sohu: Is there any indicator by figure?

　　Chen: In the planning, there is no specific figures for A&M cases or for auto firms finally remained. We don’t take such figures.

　　Sohu: Recently, there is a hot topic, worrying about whether subsidy for new energy vehicle would violate the rule of WTO agreement. Personally, I think every state has such subsidy policy for auto industry. It doesn’t violate the WTO agreement. What’s your opinion on it?

　　Chen: So do I. This policy doesn’t mean to release subsidy to the auto firm. Actually, it is a kind of subsidy to car buyers. It encourages consumers to buy cars. But, essentially, it is not an idea of buying cars. None of auto firm producing new energy vehicle encounters financial losing. In this period, it is a stage for pivot for operation. A dozen of cities join in this pivot program. In 5 cities, private cars could share the policy of subsidy. It used to benefit to public bus and now it is available for private cars. The subsidy policy doesn’t refer to a vehicle deal, not to amount of car deal but a kind of operation, to new energy technology. I see it a technical research, one in a broader area.

　　Sohu: The subsidy policy sets 60,000 yuan as its upper limit. It is hard to say this policy would be an effective driving force in the market.

　　Chen: You’re right. The new energy vehicle firm is at deficit. While the automobile manufacturers don’t want to produce the vehicle, or consumers don’t buy, the firm has to see the loss. As a matter of fact, new energy vehicle is a product of technical research.

　　Sohu: What do you think about the future of new energy vehicle market in China?

　　Sohu: We have to see. It is hard to forecast because I don’t think it is a trading.

　　Sohu: Another question. We talked about the auto industry development policy released in 2004. Is it possible to launch a new edition?

　　Chen: This policy is used to be prepared by DSPA. After the restructure government institution, Ministry of Industry and Information took over and continued to do with this policy.

　　Sohu: Recently, the latest voice from DSPA was overcapacity in auto industry. This was talked about by Mr. Cheng, Director of Industry Coordinating Department. Do you think so?

　　Chen: The issue of overcapacity is much related to the investment. In the first half, the amount of vehicle reaches 9million and the second half is 7million, not to mention another 2million vehicles expected to be produced. So large amount of vehicle capacity see 9million in the first half and 8million in the second half in addition to extra 1million vehicles remained

　　Sohu: Why are there so large extra amount of capacity?

　　Chen: In each half year, the amount of 9million vehicles goes for 18million in a year. As a result, the sale of 17million vehicle in the market makes 1million vehicles unsold. In fact, many auto firms extend their capacity privately. This leads to the capacity surpasses the demand in the market.

　　Sohu: Do you think it is possible to restrict the approval on the auto manufactory?

　　Chen: I don’t think so.

　　Sohu: How do you think about the Auto Forum 2010?

　　Sohu: It is great. (Translator: Qinghua/Hanxin)