Auto Industry

Experiencing tailbacks

Investigation into senior bosses behaviour won’t help FAW’s IPO quest

Experiencing tailbacks

FAW: stalled listing

As its name suggests, First Automobile Works was the pioneer when it came to opening an automotive factory in China (for trucks, not cars, in 1953). But the FAW Group, as it is now known, has been much more of a laggard when it comes to making its stockmarket debut. In fact, it’s now the last of China’s big three auto groups to IPO at group level (a scattering of its joint ventures and component-makers are already on the bourse). That’s despite planning for a flagship listing for years.

Part of the reason for the slow progress is the complex restructuring needed to convert FAW’s stakes in a range of wholly-owned firms and joint ventures into a listed vehicle. There’s also the embargo on IPOs in the Chinese market at the moment, with no new listings permitted so far this year.

But FAW is also wrestling with a problem more of its own making. Even if it can get to market, a number of its senior management team may not be around post-flotation, following reports that as many as 40 senior executives are being questioned in an investigation that has picked up pace this year.

Events were triggered by a review from the National Audit Office last year that uncovered shoddy business practices. But since then there have been signs of a snowballing effect, as the case takes on more of an anti-corruption flavour.

The two senior bosses that feature in most of the early coverage are Zhou Yongjiang, FAW’s deputy chief economist – and who previously had a senior role at a joint venture with Volkswagen – and Jing Guosong, another executive at the Volkswagen JV. In a complicated scandal involving more than 10 anti-graft probes, specific allegations are yet to be outlined fully. But the speculation is that last year’s audit, as well as the preparatory work for the market listing, has uncovered practices that now require greater scrutiny.

In particular, 21CN Business Herald has alleged that up to Rmb20 billion ($3.2 billion) in construction projects – many described as production facilities or dealerships – have turned out to be illicit real estate deals agreed between senior bosses and local developers.

“Real estate investment has been a tradition in FAW,” an unnamed insider from the investigation told 21CN, “and investment funds have often disappeared without a trace.”

The same source warned: “Some of the assets could have been lost into private pockets.”

Adding spice to the investigation is the suggestion that the deputy Party secretary of Jilin province, Zhu Yanfeng, is one of a substantial group being prevented from travelling overseas because of the scandal, reports New Century Weekly. Before taking on his political role, Zhu worked for FAW for more than 20 years, becoming general manager of the group at just 38 and earning a nickname as the ‘Young Marshal of the Auto Industry’. Five years ago, he was then repositioned to a provincial role in Jilin and was widely expected to become Party chief of the province. Instead he has remained as deputy, losing his place as an alternate member on the Party’s powerful Central Committee last year, which is being taken as a further sign of his loss of influence.

Rumours about Zhu’s possible fall are countered by reports that his questioning is simply “procedure” and that he is still making public appearances (and so avoiding the political purdah common to anti-graft investigations at his level). Mention of his case has also gone to ground. The China Digital Times says that the media has been instructed not to report it, while 21CN’s coverage was soon erased from its website.

Perhaps that’s why Economy & Nation Weekly, a publication from state agency Xinhua, chose a different tack in its own reporting on events. It wondered how the series of personnel transfers, detentions and interrogations was hurting daily management at FAW, as well as the chances of the much-delayed IPO. “For a company preparing to seek a listing, the stability of its management is bound to affect the judgement of the capital markets on its prospects,” another unnamed source told the magazine.

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