As with many industries in China, since the global finance crisis, the government tends to lead. In this case, it’s pushing for consolidating China’s unruly auto makers. There are hundreds of legally registered auto manufacturers but even more illegal ones. Especially if you consider the massive number of electric car makers producing cars that are technically illegal in all cities except for one. It is agreed that China requires massive consolidation in order to legistlate and monitor safety standards.To that end, the Ministry of Industry and Information Technology (MIIT) is drafting policies on mergers and acquisitions currently. The goal is to create a legal environment that encourages large scale M&A in the Chinese auto market. However, the Chinese governments track record in controlling local governments and, therefore, the small manufacturers, is spotty. Small manufacturers provide jobs, taxes and gifts to local officials. If a larger manufacturer acquires a small one, jobs will move along with it. This is the main reason the industry is so spread out. No one wants to let go of jobs in their district.Mergers and Acquisitions (M&A in China) is not simply win-win for owners and companies. It’s also about win-lose for local governments. Unless Beijing can legistlate such that makes everyone happy, it will be difficult to imagine consolidation in any industry. Let’s wait and see what the CCPC has up it’s sleeve.
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