Massive credit line to FAW Group intended at boosting economy of China's northeast

The FAW Red Flag limousine. Photo: Bloomberg

Over a dozen banks including China Development Bank, China Construction Bank, Bank of China and Industrial and Commercial Bank of China have agreed to grant a credit line amounting to 1.015 trillion yuan ($145 billion) to FAW Group, one of China's biggest and oldest automakers, in an unprecedented move reflecting the government's motive to rejuvenate the country's rust belt which is getting left behind economically.

The big deal was signed at an event jointly organized by the Mechanism for Revitalization of Northeast China and Financial Cooperation and the government of Jilin province, where FAW Group is headquartered, with senior officials from the People's Bank of China, the country's central bank, and top Chinese bankers in attendance. The Mechanism for Revitalization of Northeast China and Financial Cooperation is a government-backed agency dedicated to accelerating the industrial upgrade and economic growth of the rust belt made up of three northeastern provinces of Heilongjiang, Jilin and Liaoning.

The official Xinhua News Agency reported that the event called together more than 160 banks and financial institutions across the country to discuss the optimization of financial resources allocation and possible collaboration aimed at improving the efficiency and quality of Jilin's economy.

During the event, the 16 banks signing the agreement with FAW Group unanimously voiced their strong confidence in the economic prospects of the northeastern region, as data from the National Development and Reform Commission, the country's top economic planner, showed that fixed asset investment in the region grew 1.7 percent year-on-year in the first three quarters.

Analysts say that the deal is a sign of strengthened government support for big state-owned enterprises in northeast China at a time when polluting industries there have been phased out in a bid to optimize the region's industrial structure and combat pollution.

The deal is awaiting a series of assessments before being approved.

According to a source from FAW Group who refused to be named, the credit line is part of a government plan to revitalize the economy of the northeastern region. This view was supported by the carmaker which said that the credit line does not represent its current capital demand.

Two years ago, the National Development and Reform Commission released a five-year development plan for the revitalization of the rust belt, which aims to build the region into a major powerhouse of the Chinese economy with the help of institutional reforms and innovations.

FAW Group is a key economic pillar of Jilin province and even the whole of northeastern region.

According to the 2018 Fortune Global 500 list, on which FAW Group is ranked 125th, the automobile manufacturer posted annual revenues of $69.5 billion in 2017, which is equivalent to about one-third of Jilin province's gross domestic product. In the first half of 2018, the economic growth rate of Jilin province was just 2.5 percent, much lower than the national average of 6.8 percent in the same period, showed official statistics.

In April, the Jilin provincial government held a conference to highlight its support to FAW Group's reform and development, which also doubled as a sales promotion activity for Red Flag, a premium brand under FAW Group. The event was attended by Xiao Yaqing, chairman of the State-Owned Assets Supervision and Administration Commission under the State Council, the country's cabinet, and the Party secretary and governor of the province.

At the April event, Xiao said that he expected FAW Group to explore a Chinese way to "catch up with" and "surpass" its foreign counterparts and to play a role in "revitalizing Jilin and the northeast".

The financial assistance to FAW Group comes as the Chinese government has allowed foreign carmakers to take control of their joint ventures in China. Previously, ownership of a joint venture must be halved between a foreign and domestic company. The first beneficiary of the new policy is Germany's BMW, which recently increased its stake in BMW Brilliance Automotive to 75 percent from 50 percent. The ownership change will let the German automaker gain a higher share of the profit earned in China and allow it greater say in the joint venture's operations.

To some extent, the deal between the banks and FAW Group opens the possibility that the Chinese government would subsidize domestic automakers in the form of credit line under the backdrop of foreign carmakers being given wider access to the Chinese car industry.

FAW Group is reportedly planning to use the credit line to strengthen the research and development of smart, electricity-powered cars and to fund projects requiring major capital investment in the near future.

In China, more than half of the automobile market is seized by foreign brands and cars built by joint ventures. Home-grown brands are seen as lagging behind in terms of competitiveness and technological innovation.

However, the big financial support to state-owned FAW Group also raised public fears over the Chinese government's alienation from privately owned automakers, amid rumors that state-owned enterprises are annexing small private firms.

Earlier this month, Chinese President Xi Jinping wrote an open letter to the country's private business owners, in which he said that "any words or acts to negate or weaken private economy are wrong" in demonstration of his government's commitment to valuing and protecting the private sector.

Related Stories
Share this page
Touched Sympathetic Bored Angry Amused Sad Happy No comment

Massive credit line to FAW Group intended at boosting economy of China's northeastArtist portrays modern aesthetics in paintings by combining Chinese, Western featuresChinese indie game sheds light on how utilitarian Chinese-style parenting could beThe pendulum of Sino-Japanese relationsNumber of senior Chinese officials dying in unusual circumstances on the riseChina's mulling US flagship online store in bid to expand global footprintUS poised to extend tariffs to all Chinese imports if Trump-Xi meeting fails, hitting another US$260 billion in productsChina to raise the bar for teachers, students in bid to build world-class higher educationFord turns China unit into an independent business in push for turnaroundChina’s troubled private listed firms offered billion-dollar bailouts
< Prev Next >