Beijing drives consolidation of automobile and steel sectors

Beijing is encouraging its biggest carmakers – Shanghai Automotive Industry Corp, FAW, Dongfeng and Changan – to lead consolidation of its automobile industry.

Detailing plans announced in January to support the automobile and steel sectors in the face of the global financial crisis, the state council, China's cabinet, pledged to increase the degree of concentration in both industries.

The move raises expectations that the government could also start spelling out policy targets for the other eight industries it has pledged to support during the past three months.

The automobile industry plan is likely to attract global attention because the plight of several ailing carmakers in the US and Europe has repeatedly triggered rumours that Chinese carmakers could come to the rescue. Geely, for example, is rumoured to have considered a bid for Ford's Volvo brand. Dongfeng and Changan, which produces Volvo cars in China in a joint venture with Ford, are also thought to have expressed interest in the marque.

While the state council called on carmakers to develop their brands and pledged support for cross-border mergers as one possible means of doing that, the plan's focus is clearly on domestic industry consolidation.

The cabinet's blueprint said it would seek major progress in restructuring the industry during the next three years and wanted “to create two to three big carmaking groups with output of more than 2m vehicles a year, [and] four to five carmaking groups with output of more than 1m vehicles” by the end of 2011.

In addition, the number of players that control a combined 90 per cent share of the market should drop from 14 to 10.

The state council also said it wanted Beijing Automotive Industry, Guangzhou Automobile Group, Chery Automobile and China National Heavy Duty Truck to lead regional consolidation.