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China’s auto industry in consolidation

Shakeout in Chinese auto industry (from WSJ):

BEIJING—Changan Automobile Group Co. on said Tuesday it will take over several automobile companies now owned by state-owned conglomerate Aviation Industry Corp. of China, in a restructuring that could indicate that the consolidation of China's fragmented automobile sector is gaining momentum.

AVIC will get a 23% stake in Changan Automobile in exchange for Harbin HF Automobile Industry Group Co., Jiangxi Changhe Auto Co. and Harbin Dongan Auto Engine Co., as well as Chinese joint ventures with Suzuki Motor Corp. and Mitsubishi Motors Corp., Changan Automobile said in a statement.

Changan Automobile's parent, whose name translates as China Weaponry Equipment Group, will own the remaining 77%, it said.

Changan Automobile is already the parent company of Shenzhen-listed Chongqing Changan Automobile Co.

"This is a very reasonable merger," said Yale Zhang, an analyst at automobile-research firm CSM Worldwide. He said the restructuring helps consolidate China's mini-commercial-vehicle segment, in which Chongqing Changan holds the No. 2 spot by sales volume, followed by Changhe Auto and Harbin HF. The segment is led by SAIC-GM-Wuling Automobile Co., a joint venture between General Motors Co., SAIC Motor Corp. and Wuling Automobile Co.

The restructuring could mean consolidation in China's automobile industry, which the government has been trying to promote, is finally gaining some steam.

China currently has more than 80 automobile makers competing for thin slices of the market.

In May, Guangzhou Automobile Group Co. acquired a 29% stake in Hunan Changfeng Motors Co. to become the sport-utility-vehicle maker's biggest shareholder.

A host of other potential transactions are also under discussion in the industry.

The moves come after the central government said earlier this year it planned to encourage consolidation of its automobilemobile companies into a "big four" and "small four," to increase the local industry's competitiveness against established foreign compeition.

As part of the AVIC deal, Changan Automobile will take over Suzuki's automobile-making joint venture in China with Changhe, Jiangxi Changhe Suzuki Automobile Co., and an engine joint venture between Mitsubishi and Dongan.

The restructured group aims to sell more than 2.6 million vehicles by 2012.

It targets sales of five million vehicles by 2020 and to sell own-brand, high-end vehicles, the statement said.

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