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Chinese Government Restructures Auto Industry to Raise Demand
Apr 03, 2009

The Chinese government is focusing to consolidate the automobile industry by cutting down the number of players through mergers, paving the way for restructuring.

China has said that to boost its automobile industry, it is looking forward to cut down the number of major auto companies by means of mergers and encouraging only two or three dominant industry players, as reported by EASYBOURSE.

According to the Website of the State Council, it wanted to reduce the figure of 14 major domestic players, responsible for 90% of the country’s domestic sales and production, to 10 by 2011. As per the scheme, two or three companies would have the capacity to produce over two million units annually whereas four or five of the companies would be capable to give an output of one million units per annum. In 2008, China’s auto production scaled up to 9.34 Million Units, an increase of 5.21% from 2007.

China has announced new strategies to boost the automobile demand in the country and to promote the production of more eco-friendly cars. These measures are seen as the latest efforts to support the Chinese automobile industry amidst sluggish sales growth. 

This latest announcement has shown the government’s determination of consolidating the country’s beleaguered auto industry comprising of over 80 automakers across China. The government is seeking to establish a less-fragmented auto industry wherein each company generates significantly higher sales volume. These measures are appearing to be aiming at the industry’s restructuring.

The new measures also include research subsidies worth 10 Billion Yuan ($2.2 Billion) will be granted over the coming three years to improve the use of renewable energy, safety and other technologies by the Chinese automakers. However, the government’s strategies don’t seem to be much effective in the near future as merger is a complicated process.

According to a Research Analyst at RNCOS, “The Chinese government has been planning to consolidate the auto sector for several years. But the presence of higher number of players in the market has given rise to a complex structure, making the consolidation task extremely difficult. For China, it would be ideal to have two or three big players, but so far it looks quite impossible in view of some joint ventures in the country.”

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