Grand Chinese alliance: FAW, Changan and Dongfeng likely to join hands

Three of China's leading automakers – FAW, Changan and Dongfeng – could come together in a bid to take on foreign OEMs in the world's largest automotive market.

As per Nikkei, Xu Liuping, the chairman of defence company China South Industries Group, which has Changan Automobile Industry (Group) under its umbrella – will become chairman of the FAW Group in a move announced yesterday. He will switch roles with Xu Ping, who will also lead Changan, of which Chongqing Changan Automobile is a core group member.

Previously, Xu Ping had also chaired Dongfeng Motor Group, before moving to FAW in 2015. After that move, the two automakers collaborated on similar projects including technology for making vehicles lighter. Similarly, the upcoming swap is being interpreted as an order from the Communist Party government for the three automakers to work together, according to a Changan executive.

Media reports speculate that even though there are no concrete discussions that have yet taken place, the companies most likely will collaborate in areas of cooperation including development of electric vehicles and autonomous vehicles.

According to Nikkei, with a three-way merger not being ruled out by experts, a top executive at one of the automakers did not deny the possibility, and reports of a move in that direction have cropped up in Chinese media.

The recent move by the Chinese regulator that tightened norms on petrol-powered vehicles that pressurised foreign automakers to build electric cars in the country is aimed at promoting transfer of technology in the next generation of vehicles for China’s domestic auto industry, and putting it in position to capitalise on the transition to EVs.

Currently, few large automakers in China that have the potential to use this opportunity given the industry's current structure, which has relatively small automakers partnering foreign players such as Toyota and Volkswagen. This offers home-grown Chinese companies little chance to build their brands, leaving them unlikely to succeed in overseas markets.

As per reports, merging Changan, FAW and Dongfeng could redraw the map. Though the trio sell fewer than 4 million vehicles a year worldwide under their own brands, adding in joint production with foreign companies brings the total to more than 10 million to put them on a par with the global top three. The Chinese government likely thinks that integrating them – bringing together their technology and capital – would create a solid foundation from which to take on rivals from Japan, the US and Europe.

Integrating these three domestic automakers, which sell fewer than 4m vehicles a year worldwide under their own brands, would create a company with the potential to take on rivals from Japan, the US and Europe.