By on October 2, 2011

What looks like a Chinese-Japanese matter should cause considerable heartburn in Sweden and the Netherlands: The Chinese government has informed Fuji Heavy Industries Ltd. that it will not approve the automaker’s application to set up a joint venture in China, says Japan’s Yomiuri Shimbun. Let’s take a closer look.

Fuji Heavy, manufacturer of Subaru cars, had no manufacture in China. Rather belatedly, it negotiated a joint venture with China’s Chery. These joint ventures require government approval, so in May, the necessary papers were filed with China’s National Development and Reform Commission. The application called for a plant near China’s port city of Dalian. The intended annual capacity of that plant was 150,000 units by 2015. Local and regional authorities usually would fall over themselves to attract such an investment.

China’s central government did not want it. According to the Yomiuri, Fuji Heavy was told the application was denied because Subaru “is an affiliate of Toyota Motor Corp.”  Toyota already has two joint ventures in China, and a company can’t have more.

This is widely seen as a face-saving pretext. Toyota has a 16.5 percent stake in Fuji Heavy. If someone would draw a map of cross-holdings in the Japanese auto industry, the Tokyo subway map would look like a Mark Rothko painting in comparison. Says the Yomiuri:

“Observers suspect that China’s growing concern regarding overproduction of cars amid its economic slowdown is behind the latest move. To avert the problem, the Chinese government intends to expedite introduction of state-of-the-art technologies, such as hybrid cars and electric vehicles, they said.”

“Some observers believe the latest case indicates that Japanese firms’ entry into the Chinese market is at a crossroads.”

The complete Chinese car industry is at a crossroads. The explosive growth of China’s car market has made way to single digit growth rates. This is not unusual for China. Instead going through the boom and bust cycles of developed markets, China goes through cycles of big booms and single-digit boomlets.

The Chinese car industry is largely a foreign car industry. According to the China Association of Automobile Manufacturers (CAAM), the market share of homegrown passenger vehicles is on the decline and down to 37.2 percent. Most of the large joint ventures are in the hands of the central or regional governments.

Take SAIC as a for instance. SAIC produced 3.6 million cars last year. Only 346,525 of those were SAIC’s own. Some 3.3 million mostly raised the volume and income of GM and Volkswagen.

The large joint ventures are busy adding capacity in China as demand cools down.  China’s government finds itself aligned with the interests of the world’s major automakers. When push comes to shove, SAIC (Volkswagen, GM), FAW (Volkswagen, Toyota, GM), Dongfeng (Honda, Kia, Nissan, PSA), Chang’an (Ford, Mazda, Suzuki, PSA), BAIC (Daimler, Hyundai), or Guangzhou Auto (Toyota, Honda) are closer to the hearts of the Chinese government than their own smaller independent (or semi-independent) Chinese automakers.  The heavily fractionalized Chinese car industry must consolidate, the government had demanded that for years. The wish from above was largely ignored.  What  the regulators don’t want is new brands and more capacity outside of China’s state-owned sphere. Actually, they wouldn’t mind a little shake-out that increases the volume at the top.

And why should that give Saab heartburns? Saab is under creditor protection. It hopes every day that the NDRC will allow a joint venture with China’s Youngman and car dealer chain Pangda.  If a deal between Fuji Heavy and Chery (# 21 and #22 on the list of the world’s largest automakers) has been denied, how do you rate the chances of two companies that aren’t even on that list? If it took the NDRC since May to find out that Toyota has a 16.5 percent stake in Fuji Heavy, how long will it take the NDRC to decide that the Youngman application hasn’t been properly filed, and please submit a new one? If China doesn’t want a 150,000 units Subaru factory, do you think it wants a Saab that is on Swedish life support?

China will take whatever state-of-the art technologies  – when they are cheap in a bankruptcy sale. BAIC will be happy to buy it at scrap value. Meanwhile in Sweden, the Saab faithful celebrate Octoberfest. With live Internet-hookup to China …

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15 Comments on “Muller’s Maalox Moment: China Turns Down Subaru...”


  • avatar
    doug-g

    Chinese officials can package this anyway they want but, this is just another example of the intolerance of the Chinese government and is merely a ruse to deny Chinese lesbians the opportunity to own an Outback.

    • 0 avatar
      John Horner

      Considering China’s demographic trends, lesbians are likely to be in short supply. So many boys, so few girls.

      http://www.huffingtonpost.com/2010/01/11/chinas-birth-rate-to-leav_n_419124.html

      • 0 avatar
        doug-g

        This could prove beneficial for Cadillac in China as that’s the brand most pimps have preferred through the years. I wonder how hard it would be to turn the CTS coupe into an Eldorado?

      • 0 avatar
        Robert.Walter

        So many boys without a hope of snagging a girl may drive a lifestyle change… time for GM-China to re-introduce the Aztek!

        BTW, IIRC and if what IRC is still current, Bertel’s (really nice) list has overlooked: Jeep (BAIC) and FAW (Audi and Mazda6).

        Oh, and I read that Subaru’s parent (FHI) had officially changed its name to Subaru like 5-years ago (supposedly because they didn’t make much more than Subaru-brand cars these days). Did they really change it back to FHI (or never change it at all)?

      • 0 avatar

        Snore. REALLY old story. Even at my ripe age, I was unable to verify the shortage of females in China.

        Also, in the meantime, there was a an official census.

      • 0 avatar
        whynot

        “Oh, and I read that Subaru’s parent (FHI) had officially changed its name to Subaru like 5-years ago (supposedly because they didn’t make much more than Subaru-brand cars these days). Did they really change it back to FHI (or never change it at all)?”

        FHI never changed its name, but they did adopt the Subaru logo as the corporate logo. While they don’t make much more than Subarus in the car industry, they are a large supplier in the aerospace industry, especially for Boeing.

  • avatar
    doug-g

    Actually, if memory serves me correctly, the Saab convertible was pretty popular with gay males. We just saved Saab in five comments.

  • avatar
    dvp cars

    ……..the military oriented Chinese government has a long memory. Tipping the scales in their Subaru rejection may have some small connection to the fact that FHI is a post- WW2 reorganization of wartime industries, principal among them the mighty Nakajima Aircraft company, builders of fighters and bombers deployed in the infamous ‘Rape of Nanking”, long a sore point in Sino- Japanese history.

    • 0 avatar

      Oh please. So you know that for a fact? Now what about Mitsubishi? They had two car joint ventures in China for years, along with a host of wholly-owned businesses.

      These matters have absolutely zero impact on these deals. Chinese are shrewd business people and are not sidetracked by matters more than 70 years ago. There are several Japanese companies right there in Nanjing and the city promotes business ties with Japan.

      The History Channel as a sole source of news is dangerous.

  • avatar
    jeff_vader

    Things could now get really interesting and not just because of the over-production issue. What we really need to know is when PangDa/Youngman filed their documents with the NRDC. It took five months for the Subaru deal to be rejected & we know for a fact that the PangDa/Youngman docus weren’t filed at that time. So using the Subaru and Peugeot experiences, for the money to come in by Novemeber the Saab documents had to have come in by July at the very latest. Otherwise the money won’t make it to Saab by the time the re-organisation/administration has finished & over production will no longer be an issue. Saab will finally be bust.

    • 0 avatar

      Here is what we know (from the usually unreliable open sources)

      – As of August, no application had been filed
      – Mid September, the local and provincial authorities approved an application. That’s the easy part. Local industry and local government lead a symbiotic life in China.

      If the above holds true, no formal application to the NDRC could have been filed before mid September, because it needs the regional nod first. We don’t even know THAT it has been filed. The last definite mention on inside.saab said that “We have passed two of the three levels, and will now proceed to the NDRC.” Neither in this nor in later mentions were indications of an actual filing.

      There is no definitive time for how long the NDRC process will take. It can take forever.

      The HUMMER-Tengzhong deal dragged on for the better part of a year, and through the end, the NDRC denied having received a proper application.

      The PSA deal was announced in July 2010, approval was reached in May 2011. I don’t know when the application was handed in to the NDRC. However, Dongfeng used to be a part of the Chinese government through the 80s and remains a State Owned Enterprise. Dongfeng is a major supplier to the Chinese military. If they have to wait, imagine the runaround a busmaker from the provinces will get.

      Usually, these applications are not out and out denied, they are not accepted because of a technicality. In the case of Subaru, Fuji Heavy was finally told (allegedly) that they could not apply, because they are an affiliate of Toyota, and Toyota already maxed out their quota. So sorry. Face saved all around.

      Apart from the overproduction, and the wish for consolidation. there are two other factors: BAIC and SAIC. The two, the former being owned by the city of Shanghai, and the latter by the city of Beijing, usually are bitter rivals, but in the case of Saab, they have common interests: SAIC uses a lot of GM/Opel technology, and doesn’t want competition from an upstart. BAIC bought the old Saab technology, wouldn’t mind to have more, and doesn’t want competition from an upstart. Good luck.

  • avatar
    shaker

    Sorry for the OT, but that CCTV commentator is HAWT

  • avatar
    dvp cars

    …….for a small automaker, Subaru has a knack for being a political hot potato….they exported to Israel during the 70’s and early 80’s, the only Japanese brand that dared defy the Arab oil states’ threatening embargoes. To this day they are still a popular car there, but recently became embroiled in controversy over a local dealer’s TV ad, allegedly depicting a Subaru hit-and-running Palestinian children.


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