China Tightens Rules For New Automakers. Too Late!

If you want to start a business in China, you need a business license. Getting a license to make cars used to be quite hard, but the Chinese government wants to make it harder. China’s industry ministry will hand down standardized rules, which may limit new entrants, Bloomberg reports.

The not yet precisely defined rules don’t sound sinister at first glance. They state that new car companies must meet certain criteria including scale of production and development capacity. They will take effect on January 1, a statement on the ministry website says.

These rules come a little late. China’s problem is not too many new car companies. China’s problem is too many old car companies. Nobody knows for sure how many there are, the accepted number is “more than 100.” In the past, it was mostly regional governments which became enthusiastic when a car company came to their province. A province without a car company is a rarity in China. Car companies often received land at bargain prices and loose loans.

However, China is falling back in the global car race. Too little research si spread out over too many car companies. If keeping up with research into conventional cars is overwhelming China’s carmakers, research into future technologies is simply something they cannot afford.

What China needs is a consolidation, and that is not brought by rules for new carmakers. It is brought by the demise of the unfit.

Auto sales growth in China is slowing, but manufacturers are building for more. Bloomberg figures that “the combined sales targets of China’s largest automakers may exceed total demand by as much as 32 percent by 2015.”

The tightening of the regulations and the much tighter money however will be in the way of new entries – such as Saab. Saab-suitor Pangda is already slowly extricating itself from the mess. According to Chinese stock site JRJ.com , Pangda will continue to negotiate even after the Memorandum of Understanding had timed out on November 15th. However, Pangda’s patience wears thin. Word in China is that Pangda will bow out soon if nothing definitive happens.

Pangda has other problems anyway. A look at the chart shows that its stock lost more than half of its value in one day, and is now slowly deteriorating. With a chart like that, no woder your enthusiasm wanes.