Breaking systemetic obstacle is priority

Feng Fei,  Director of Industrial Economy Department, State Council Development Research Center

In the future it will lead to greater domestic mergers and acquisitions fever, and the self owned brands are possible to become core enterprises. In the respect of capability, the listed large domestic enterprises have the initial finance capacity on the merger and reorganization but are still far for implementation.

For the obstacle to China auto enterprises' reorganization, Feng Fei summed up in three aspects.

First comes the mechanism of driving force. After China's accession to the WTO, the auto market once "blowout", the capital of profit generated rapid expansion but not sufficient competition of the automobile industry. The profit of Chinese auto industry is generally higher than other industries, and it is difficult for the auto enterprises to joint and reorganization.

Feng Fei pointed out with the case of foreign restructuring, that there must be complimentary enterprises in reorganization. For example, the Benz and Chrysler, Mercedes products aimed at the upscale market, and Chrysler hit the mid - and low-end markets, eventually achieved through joint complementary. In addition to products, the complementarities among firms include procurement, technology, and marketing networks and so on. The auto enterprises in China currently, are general weakness in overall strength. It's very difficult to acquire useful resources by merger, and the most important thing is that they are not complementary in technological capabilities. Therefore, at this stage, China's automobile enterprises have not formed such a dynamic mechanism.

The second obstacle for merger and reorganization is from the management structure. In other words, at present, it is the singleness of ownership in China's auto industry. Automobile enterprises are mainly state-owned, which could be divided into central and local enterprises according to the different ownership, and the central enterprises could belong to the State-owned Assets Supervision and Administration Commission of the State Council(SASAC), the aerospace and other departments. It can be said that the enterprises of different ownership is in balance of interests. In such a management system of state-owned assets, the capital flow between different ownership is poor, the same as for the merger and reorganization in auto industry.

Feng Fei believes that the state encourages auto enterprises to reorganization, with the goal of optimizing the industry structure. However at present, China's automobile industry management system runs counter to some extent. For example, the automobile industry access system, in which once enterprises access, it was the equivalent of getting a scarce resource even an enterprise's output is very small, it could be survived through equity transfer or other measures.

Feng Fei stressed that for automobile industryinvestment, the government should not only control but focus on how to correctly guide the investment. The simple control could only solidify the existing structure and is not conducive to the formation of a fully competitive auto industry.

With the analysis of reasons for the slow step to merge and restructure, Feng Fei considered that if the state set to encourage and promote the joint and reorganization of auto enterprises, it is necessary to remove institutional obstacles. The government should encourage car enterprises to compete effectively, standardize the order of competition and make public interest-oriented goals, finally improve energy-saving and the environment.

In addition, it is another obstacle is that the domestic operators are lack of  means of reorganization. The mergers and acquisitions happened in foreign country are always through convertible stock exchange, however the development of domestic capital markets is far from mature. The mergers & reorganization of enterprises often require large amounts of cash to operate which domestically is in lack.(To be continued)

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