China wants to restructure auto industry

China said Saturday it wanted to boost its auto industry by reducing the number of companies in the sector through mergers and promoting two or three carmakers to become the dominant players, AFP reported.

The government's plans for auto industry reform were unveiled two months after it approved stimulus measures including tax cuts and subsidies to help carmakers survive the global economic downturn .

The State Council, or cabinet, said in a statement on its website dated late Friday that by 2011, it wanted to cut the number of major domestic automakers, who are responsible for 90 percent of domestic sales and output, from 14 to 10.

Under the scheme, two or three companies would be the industry heavyweights, capable of producing more than two million units a year, while four or five others would have annual output capacity of one million units.

It named four groups as possible nationwide leaders that should consider expansion through mergers and acquisitions -- FAW, Dongfeng Motor Corp, SAIC (Shanghai Automotive Industry Corp) and Chang'an Auto.

SAIC, the nation's largest automaker, merged in late 2007 with rival Nanjing Auto, which owns the MG car brand.

China wants to churn out 10 million vehicles in 2009, and has set a target of a 10 percent rise in annual output for 2009-2011.

According to the China Association of Automobile Manufacturers, production last year reached 9.34 million units, up 5.21 percent from 2007.

In 2008, auto sales growth shrank with an increase of just 6.7 percent, the first single-digit expansion since 1999 in a market used to growth rates of more than 20 percent.

But in February, China bested the United States as the world's largest car market for a second consecutive month, with sales up nearly 25 percent from a year earlier, buoyed by the government's stimulus measures.

February sales of domestic autos hit 827,600, up 24.7 percent from a year earlier, the official Xinhua news agency reported earlier this month, citing the China Association of Automobile Manufacturers.

But analysts say the government's plan may not bear much fruit in the short term, as the mergers process is a complicated one.

"It has been the central government's plan to consolidate the auto sector since 1994," said John Zeng, an expert at Global Insight.

"But there are more and more players in the market... the structure is complex and it makes consolidation extremely difficult," he said, adding that local governments would be unwilling to surrender jobs in their jurisdictions.

Jia Xinguang, of the China National Automobile Industry Consulting and Developing Corporation, agreed.

"There are around 180 auto companies, including big and small," Jia said.

"The ideal would be to have two or three automakers in China like other countries but it's still impossible at the moment because there are some joint ventures in China."

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