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A trillion at a time

red-flag-car-volcano-w

There was plenty of fanfare when Apple and then Amazon announced they had surpassed market capitalisations of $1 trillion. Over in China another trillion-figure milestone has been reached too: carmaker FAW has received credit lines from 16 local banks totalling Rmb1.015 trillion ($146 billion).

The Nikkei newspaper described FAW’s borrowings as a record for a single company and added that the debt equates to five years of profits for the entire Chinese car industry.

FAW said the loans supported a “solid financial undertaking” as the company pursued the country’s Made in China 2025 goals in areas like electric vehicles and autonomous driving. It added that they would also underpin the growth of its homegrown brands, such as the Hongqi (Red Flag) limousine used by President Xi Jinping on state parades.

Of course, FAW makes a lot less from the Hongqi than from its key joint ventures with Volkswagen, Audi and Toyota. Jilin-headquartered FAW-Volkswagen has been a particular cashcow, though the Chinese partner will watch with interest how BMW has taken a groundbreaking 75% controlling stake in its own joint venture with Brilliance China. Audi has already irked FAW management with its move to shift some of its production to another VW joint venture with Shanghai-based car firm SAIC (see WiC416).

The backdrop to the loan is a realisation that the state-owned auto giants in China need to do more to wean themselves off their reliance on sales via their foreign JVs and invest more in new energy cars, which promise a new avenue for growth.

China’s passenger car sales have actually declined for three consecutive months – the largest setback for seven years. According to data from the China Automobile Association, in September a total of 206,500 passenger cars were sold, down 12% year-on-year. But the slump may be about to reverse, reports Bloomberg, as the government looks for ways to stave off the effect of the Sino-US trade war. It says Beijing is eyeing a 50% cut in vehicle purchase taxes to bolster demand for cars with engines no bigger than 1.6 litres, which accounted for about 70% of sales last year.

The last time that the tax was cut significantly in 2015, sales surged. The upbeat news was enough to see a 5% spike in the shares of FAW’s European partner Volkswagen on Monday.


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