Three major groups of Chinese auto industry rush to privatize?

The year of private enterprises in China's auto industry

Although the debate over the overheated investment in the auto industry has not yet been settled, there are various indications that a "private enterprise vehicle construction campaign" has been unveiled in 2003.

The first thing that opened the curtain was Wang Chuanfu, known as the “Battery King,” and on January 23, 2003, Wang ignored the doubts of many Hong Kong funds and passed BYD shares listed on its Hong Kong main board to acquire Xi’an Qin with 254 million Hong Kong dollars. Sichuan Automobile Co., Ltd. has a 77% stake and has officially turned the entire vehicle manufacturing industry.

After a week, a private enterprise in Guizhou Province, Guizhou New Century Automobile Investment Company and Guihang Group signed the "Lark Car Limousine Project Licensing Agreement," and it officially took over Guihang Lark, a state-owned enterprise, by way of project contracting. Holding a car factory.

The market was even More out of hand: In April, Zhejiang Zhongyu, an industrial lighting manufacturer, joined Dongfeng to acquire Wuhan Wantong Automobile; in May, Ningbo Huaxiang, an auto supplier, acquired Hebei Zhongxing Automobile; in October, Ningbo Oaks Group acquired a 95% stake in Shenyang Shuangma Auto. In December, Greencool announced that it will invest 400 million yuan to acquire Yangzhou Yaxing Bus Co., Ltd....

Newcomers have entered the industry, and the first movers are accelerating.

On December 15, 2003, Great Wall Motor Co., Ltd. of Baoding, Hebei, officially listed on the Hong Kong main board, issued 114 million H shares and raised 1.516 billion Hong Kong dollars. This is the first privately-owned auto company listed in Hong Kong. According to reports, its public offering was highly sought after, and public oversubscription was as high as 682 times, even exceeding Chinese People's Insurance Commission. This is a phenomenon that has never been seen since Beijing Holdings’ listing in Hong Kong in 1997.

Some observers believe that this indicates that domestic private enterprises have entered a completely new stage in the operation of the automotive industry.

According to statistics released by Galaxy Securities at the end of last year, in 2002 private-sector companies spent as much as RMB 11.7 billion on domestic auto manufacturing.

Take Zhejiang Province, where private capital is most active, as an example. In just three years, 28 private enterprises in the province have entered the vehicle manufacturing industry, and the privately operated capital is even more difficult to count. As of the end of last year, the National Development and Reform Commission had received applications from 40 private enterprises in Zhejiang and requested to obtain a full vehicle production catalog.

Dr. Xue Feng, managing director of China State Consulting (Shanghai) Consulting Co., Ltd., said that since Geely became the first private enterprise to eat crabs in 1997, there are four models for private capital to enter the auto industry. The first is based on Geely. As a representative of the "Fengguan mode", in the absence of "life permits" in the case, the first step into the way to enter first. It was not until 4 years later that Geely was qualified for car production.

Followed by authorized operations, the representative company is Guizhou New Century Automobile Investment Company. The third type is the management buyout. The representative is Shanghai Yutong. In January of this year, Shanghai Yutong obtained 90% equity interest in Yutong Group held by Zhengzhou Municipal Finance Bureau through auction, which indirectly held 15.47% stake in Yutong Bus (600066), which changed the actual controller of Yutong Bus to include Yutong Group's major executives. Shanghai Yutong, which was funded by 21 natural persons. The Great Wall Motor mentioned above was first contracted and later acquired by the management.

The fourth mode is to buy shells and obtain automobile production qualifications through the acquisition of state-owned auto companies. This is the most common and easiest mode of operation at present. To date, the vast majority of public funds have adopted this model to join the auto industry.

Obviously, for private investors, the primary obstacle to the automotive industry, especially to the vehicle manufacturing industry, is still market access. To date, there has not been any single case. This is a private car that has been launched after normal approval. enterprise. According to public reports, this situation will not change in the slightest after the introduction of the new automobile industry policy.

The driving force of public investment

The general view is that the auto industry loosened the public funds at the end of 2001. The sign was that on November 9, the State Economic and Trade Commission issued the sixth batch of auto product announcements. Geely, South Asia Auto, and Brilliance and other non-state-owned enterprises were on the list. Prior to this, Li Shufu was almost desperate because he could not get a production license. “When I first started building a car, I felt like I was doing something that wasn’t right.” Geely founder Li Shufu later said.

The unfair treatment received by private enterprises at that time drew attention from all walks of life. Coupled with China’s accession to the WTO, the central government began to consider the auto industry’s openness to private capital. At that time, the State Economic and Trade Commission and the State Development Planning Commission began to revise the automobile industry policy.

However, the direct fuse of private capital surging into the automobile industry is the blowout market of the domestic auto market in 2002.

In 2002, the total industrial output value of the 15 key auto enterprises in China reached 323.25 billion yuan, an increase of 39.1% over the same period of last year. The rate of production and sales reached 99.9%, and the profit before tax reached 20.49 billion yuan, a year-on-year increase of 56%. This year was therefore called China's "car first year."

In 2003, the auto market continued to be hot. In the first half of the year, 47 listed automobile companies completed a total of RMB 58.889 billion in main business income, and achieved a net profit of RMB 3.933 billion, a year-on-year increase of 37.31% and 154.29%, respectively. Anjun Group analyst He Jun believes that unexpected market growth has stimulated the investment of private capital, and that China’s economy is characterized by a “bright spot economy” in which prominent industries such as real estate, automobiles, and steel play an important role in economic growth. Role, which will surely cause social capital to concentrate in a few industries in a short period of time.

On the other hand, local governments are fully aware of the automotive industry's promotion of the local economy, and they have started to support local auto companies. In 2003, with the exception of Tibet and Qinghai, all provinces (cities, districts) in the country proposed to use automobiles as a pillar industry. This is different from the past. This time, private enterprises became direct beneficiaries.

The automotive industry has a lot of brilliance. The overall profit margin of other industries has been declining. Taking the private capital-intensive home appliance industry as an example, in the first half of 2003, the gross profit margin of most of the 22 home appliance listed companies was around 7%, and the drop in the net profit of some companies was more than 40%. This shows that the company has entered the early warning phase of losses. In this context, entering the automotive industry and implementing profit diversification have become an important choice for home appliance companies.

Dr. Xue Feng believes that profit-making is an essential feature of private capital. Long-term administrative controls and trade barriers have created an arbitrarily high profit for the auto industry, and it has become an inevitable trend that private capital has swarmed into the auto industry. In addition, private investors also look to the auto industry for financing and listing prospects, which is a shortcut to capital appreciation.

Can it survive after coming in? On January 6, 2004, Guorun Holdings, which was listed on the Hong Kong Stock Exchange, issued an announcement stating that the two natural person shareholders of its holding company transferred 15% and 17% respectively to Li Shufu’s wholly-owned company. Shares. Thus, Li Shufu indirectly holds 20% of the shares of Guorun Holdings, becoming the major shareholder of Guorun Holdings. Although Li Shufu personally described this, but the industry generally believes that this means that the Hong Kong backdoor listing plan has been implemented for nearly two years.

For Geely, after solving the production licensing problem in 2001, the funding issue became a top priority. In 2003, Geely’s mid- and long-term plans began to be implemented. The ultimate goal is to make Geely’s domestic market share exceed 10%, of which 300,000 cars will be produced and sold in 2005, and 2 million cars will be produced and sold by 2015. Bank loans have apparently been unable to meet their financial hunger.

“At this stage, the advantages of private capital entering the auto industry are not obvious. From the perspective of industry characteristics, the characteristics of the capital-intensive and relatively technically-intensive automobiles are all high thresholds. Even if the capital can be squeezed in, it is necessary to It is not easy to survive and grow big,” said An Jun, an analyst at Anbang. “If there is no successful financing in Hong Kong, Geely’s days will be very sad.”

This means that, after solving the entry problem, private enterprises will immediately face the problem of survival.

Due to the scarcity of sedan resources, most of the people entering the auto industry are producing low-end products such as pickup trucks, SUVs (off-road vehicles) and passenger cars. In addition to a few high-end passenger cars and SUVs, the profit margin is often only about 10%. Even Geely, due to its main economical car, its profit is also greatly reduced compared with its peers, and some models even have only 5% of profits.

With a low profit margin, it is necessary to rapidly increase production and sales, which in turn means huge capital investment. After the initial investment in the production and the subsequent investment in the laying of the sales network, continuous medium-term investment is also required.

Technology may be a more serious problem than capital. Due to the late entry of private capital, lack of talent and generally weak technical strength, most of them can only strive for survival space at the low end.

In August last year, the Zhejiang Provincial Federation of Industry and Commerce, the five national ministries and the Zhejiang Provincial Economic and Trade Commission jointly conducted a special investigation on the upsurge of Zhejiang's private investment in the automotive industry. The conclusion is that the majority of Zhejiang's production companies have limited vehicle design capabilities and use the doctrine of Main; low level of manufacturing, production of high-precision machine tools, parts and components - CNC machine tools, automated assembly lines and testing equipment, such as the total amount is small and mostly dependent on imports; basic industries are weak, most of the raw materials for the manufacture of auto parts are imported the Lord.

Chen Haijiang, an expert in the automotive industry and deputy director of the Machinery Industry Office of the Zhejiang Economic and Trade Commission, clearly stated that he was not optimistic about the participation of Zhejiang enterprises in the production of automobile vehicles. He said: "Despite the fact that private enterprises can quickly mobilize the production capacity of spare parts and put a large number of automobiles on the market in the short term, they do not have the technological talents, so when the low-end market is saturated, it is the day when the private automakers fail."

More important are policy issues. He Jun believes that from the perspective of the new automobile industry policy disclosed so far, the country wants to support several major groups, accelerate the integration of the Chinese automobile industry, and eliminate some small-scale automobile manufacturers. Therefore, although it does not rule out market opportunities for private capital, overall, this industrial policy is less favorable for private enterprises as latecomers.

Chen Haijiang believes that Zhejiang's private capital Nuggets auto manufacturing industry does not have long-term advantages. The auto industry policy now emphasizes industrial concentration in the future, and this is consistent with the trend of the world's auto manufacturing industry.

The privatization of the three major groups?

Not all people are pessimistic about the situation of the civilian capital in the automotive industry, and Meng Fanchen has other views on the prospects of the people’s capital. He believes that private capital is the hope for the rise of China's auto industry, and it only needs time. However, “If the private equity cannot get involved in the equity participation of the three major auto groups in China, it will be difficult to achieve a true mainstream. The best possibility is that in the process of the transformation of the three major groups, private capital will achieve relative control.”

Dr. Meng Fanchen is a director and global vice president of Kearney. He once served as Germany's most well-known and most successful senior enterprise management expert for Chinese Americans. He also briefed Zhu Rongji and other senior Chinese officials on the transformation and transformation of former East German companies and helped them. US investors planned 11 investment projects in the Chinese automotive industry.

Meng Fanchen’s views are based on two major backgrounds. The first is the restructuring of state-owned enterprises. At present, the proportion of state-owned assets in the automotive industry is as high as 70%-80%, which is the highest in China's competitive sector. After the establishment of the SASAC system, privatization has become a general trend. This is the established policy and mainstream thinking of the central government.” Meng Fanchen Says, "Even if there are vested interest groups and historical reasons, reforms and conversions will lag behind in the automotive industry, but they will eventually come."

The second background is the coming of the next car era. For the multinational giants, the challenge they face is that the traditional internal combustion engine technology has come to an end. The new generation of clean energy vehicles will gradually become the mainstream. The consensus in the industry is that the new market will start in 8 years and the new market will be targeted. Strategic planning must go into operation after 3-4 years.

For private enterprises, this is a rare opportunity to rise.

Meng Fanchen believes that the future of private auto companies is nothing less than three possibilities. The short-term possibility is to do OEM (Original Equipment Manufacturer) for multinational companies, including the assembly of spare parts and the manufacture of spare parts.

For foreign companies, they have enough incentive to place OEM orders in China because the auto industry is investment-intensive. Shareholder effectiveness is reflected in minimizing investment while profits remain constant. For example, General Group divided Delphi in 1999. This makes the latter the world's largest supplier of automotive parts. Although Delphi also provides services to GM competitors, it is more advantageous for GM to invest in spare parts than to return to shareholders.

On the other hand, with the increase in global competitive pressures, some new products have become smaller and smaller. At this time, the most economical method is subcontracting. For example, some small Mercedes-Benz models are subcontracted to Austrian manufacturers. Meng Fanchen expects that by 2006, the launch of new brands and new models will reach an unprecedented level in mainland China, with at least more than 50 models, and the average annual output of each model will be 30,000. This market situation is very suitable for OEM.

In addition, the direct and indirect protection of the Chinese market will continue to exist for a long time. Many foreign products are not easy to enter. They also need to get parts of the whole vehicle to domestic assembly and complete some labor-intensive operations in China. .

For many private enterprises in China, the original capital accumulation has been completed, it is difficult to do more in the industry, and foreign exchange control has limited overseas expansion, so the localization of the operation of the OEM is a satisfactory choice.

The second possibility is to take advantage of the transformation of state-owned assets to acquire restructured state-owned auto companies. In this respect, the Deron model is greatly admired by Korni.

Since the second half of 2002, Delong Holding’s listed company ---Huang Huo Torch Investment Co., Ltd. has successively fulfilled its responsibility for Dongfeng SUV Co., Ltd., Shaanxi Heavy Vehicle Co., Ltd. and Chongqing Hongyan Automobile Co., Ltd. with lightning speed. Companies such as the company's three automotive vehicle manufacturing companies.

In just over a year, DeLong has controlled a 50% share of the domestic heavy truck market.

Analysts believe that the success of DeLong's campaign lies in the fact that China’s state-owned enterprises, which have certain advantages in production and rich profits, cut into the heavy truck market, and quickly reached agreements with local governments and enterprises to achieve Holding, reorganization of the company with strong capital strength, and expansion in the short term.

“The advantage for private capital is that it can get industry experience and capabilities in a short period of time. For interventions in an industry that has a large fixed-front investment, this method can be effective in both ways.” Meng believes that even Ultimately selling companies can also maximize the interests of shareholders.

In the long run, the best opportunities for public investment lie in the privatization of FAW, FAW and SAIC.

Meng Fanchen believes that the central government is facing a far-reaching problem: the three major automobile groups will eventually let foreign capital dominate, or will form independent research and development capabilities in the course of joint ventures and cooperation. If the latter is the case, it must be led by private capital. “Over the past 20 years, state-owned enterprises have not obtained independent research and development capabilities, and it will be difficult for them to be able to pay in the next 20 years,” said Meng Fanchen.

"If Chinese domestic auto companies want to reproduce the success of their Korean and Japanese counterparts, they must quickly complete the reform of domestic companies, especially the operational mechanisms of the three major groups, namely, privatization. This is even more than the development of independent brands. There is still a long way to go."

However, the current situation of the three major groups is still good, and the market is so prosperous. How can it sell shares to the public funds? Meng Fanchen's answer is that from the perspective of strategic decision-making, it is precisely the best time to sell. "The market is the best and the best prospect is when the selling price is the highest. When the market is down, the best time is lost. ”

The case of Shanghai Electric Group seems to be able to explain some problems.

On January 10th this year, Shanghai Electric (Group) Corporation signed an entrustment agreement with the Shanghai United Assets and Equity Exchange at the Shanghai International Convention Center and issued 6.5 billion yuan worth of quality assets to attract investors to participate in Shanghai Electric's equity worldwide Diversification.

It is reported that the bottom line of Shanghai Electric Group is that the state-owned capital ratio can be reduced to 40%.

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