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Why No Bailout For ChiCom Automakers?

A three week old article from Business Week that did not seem to get much attention:

No Beijing Bailout for Chinese Automakers

With China’s economy cooling, sales growth is way down at the country’s 100-plus carmakers. But the government shows no sign of intervening

By Chi-Chu Tschang

November 21, 2008

As China’s economy boomed during the past few years, dozens of Chinese companies jumped into the car business, setting up factories to produce autos for the growing middle class. Thanks to those new automakers, many of them backed by local governments, today there are more than 100 Chinese auto manufacturers with a combined production capacity of over 9.6 million vehicles, according to Changjiang Securities. Problem is, Chinese purchased only 8.8 million vehicles last year, according to official figures.

Now, with the global credit crisis cooling China’s economy, demand for cars is growing even weaker. Growth in auto sales is expected to be just 5% this year, compared with 22% in 2007, estimates the China Passenger Car Assn. On Nov. 11, Geely reported sales for October had dropped 7.4% from last year. Last month, SAIC Motor reported quarterly profits dropped 78%, to $38 million; the Shanghai automaker’s stock price has dropped 78% this year, compared with a 62% fall in the Shanghai stock index.

With sales in the doldrums and investors shunning their stocks, some of the leading Chinese automakers are taking a page from General Motors (GM), Ford (F), and Chrysler’s handbook and calling for China’s government to support the auto industry. However, talk of a bailout seems to be wishful thinking. Beijing failed to include any measures to help the industry in the $586 billion stimulus package announced earlier this month. And most of the largest automakers in China, including Dongfeng Automobile, SAIC Motor, and Tianjin FAW Xiali Automobile, are still profitable.

That’s why the government seems to be taking a hands-off approach. It’s not providing assistance to the country’s automakers, but it’s not forcing a much needed consolidation, either. “It’s not like in the U.S. where they are going to get a lot of help with their business,” says Henry Li, head of exports at BYD Auto in Shenzhen, which has halved its 2008 export target to 10,000 vehicles in light of the crisis. “The government does not provide financial support. The only thing they can do is help organize fairs to increase domestic consumption.”

With an eye on long-term sustainability, Beijing is encouraging the auto industry to develop more fuel-efficient cars. For instance, in September the government raised the consumption tax on luxury cars, which had been 20%, to 40%. Chen Jianguo, deputy head of the industrial coordination department at the National Development & Reform Commission, said earlier this month that the government was considering slashing the sales tax, which accounts for one-tenth of a car’s price, on alternative-energy vehicles to boost demand. Beijing is also likely to levy a gas tax, offsetting a possible fall in gasoline prices, in a step toward allowing the market to set prices instead of the state.

So far, hybrid cars have failed to catch on in China, partially because of their high price tags (BusinessWeek.com, 2/14/08)…

Nevertheless, with China being one of the few markets in the world that is still growing, some foreign automakers are forging ahead with their plans to invest in China. For instance, Toyota is expanding a factory in the western province of Sichuan, scheduled to open in 2010. Rival Nissan in September started construction on a new factory, also scheduled for a 2010 debut. And Chinese and foreign media reported early this month that SAIC Chairman Hu Maoyan says even GM wants to expand in China. The U.S. automaker is looking to raise its stake in a joint venture with SAIC above its current 34%, Hu said. GM has not commented on the reports.

Meanwhile, around this same time our Congressmen were touting a Chinese bailout as a model.

Senator Carl Levin with an article describing a proposed bailout for Chinese automakers in Washington DC on November 19.

What does Communist China know that our Solons in Congress do not?

(Though note that there are several things that the ChiComs are doing that our Congressmen do also want.)

This article was posted by Steve on Friday, December 5th, 2008. Comments are currently closed.

3 Responses to “Why No Bailout For ChiCom Automakers?”

  1. U NO HOO says:

    No cars mean the people stay out of the cities.

  2. proreason says:

    Having actually experienced Socialism, the chicoms know better than to Central Plan themselves back into the Stone Age.

    Obamy, having been holed up in his dorm room for 46 years making up lies about his life and festering about the unfairness of our culture, which he never experienced or witnessed, doesn’t know better.

  3. 12 Gauge Rage says:

    The Chinese are like the Saudi’s in that they both share the same problem and that is tension beneath the surface. Both countries have a lot of teeming masses both of which are the have-nots brewing with deep seated resentment towards those that have. I have never been to China but when I was younger I was deployed to Saudi Arabia for Operation Desert Shield which when war broke out was changed to Desert Storm. Once the war was over and security relaxed a bit we were free to travel into town. The nearest big city was D’haran. And there I got to see what life was like for the affluent and not so fortunate. The only thing that stuck in my mind the most was watching a mean as hell Saudi policeman giving an old beggar woman a hard time because she was begging in front of an upscale mall. I suppose the Chinese are the same way but keep it as hush hush as the Saudi’s try. The law and order of the house of Saud hangs by a charred precarious thread.

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