Rumors of a merger between China's two major state-owned automotive companies, FAW (First Automobile Works) and GAC (Guangzhou Automobile Group), have emerged, with projections suggesting the creation of an automotive giant capable of annual sales exceeding 5 million vehicles.
On September 14, GAC announced a temporary suspension of its stock trading on the Shanghai Stock Exchange, citing the need to disclose important information. According to the 21st Century Business Herald, GAC officials indicated that a significant announcement was expected after the market closed, prompting the urgent trading halt. While specific details of the announcement remain undisclosed, the market is leaning towards the possibility of a merger between the two companies.
On September 13, the Chinese economic media outlet Caixin reported that FAW is pursuing a stake acquisition in GAC, hinting at the potential establishment of a joint venture. Caixin noted that the collaboration is being driven by pressure from the Chinese government for restructuring.
Market speculation suggests that FAW has already secured a stake in GAC, making it the second-largest shareholder, and rumors are circulating that an FAW affiliate may join GAC's board of directors.
FAW and GAC represent the northern and southern regions of China, respectively, with headquarters in Changchun, Jilin Province, and Guangzhou, Guangdong Province. FAW collaborates with global automakers such as Volkswagen, Audi, and Toyota, while GAC partners with Toyota and Honda. A merger could significantly impact their joint ventures with these international companies.
The merger rumors arise amid a backdrop of oversupply and fierce competition in the Chinese automotive market, which has led to poor performance for both companies. GAC reported a loss of approximately 8.8 billion yuan (about $1.76 billion) last year and over 4.4 billion yuan in losses in the first half of this year, raising concerns about continued significant losses. FAW also experienced a more than 15% decline in revenue in the first half of this year compared to the same period last year.
As the transition to electric vehicles accelerates in China, both companies are struggling to compete in the new energy vehicle sector. Analysts suggest that restructuring is becoming essential to enhance the competitiveness of state-owned automotive enterprises in response to intensifying price competition in the market.
The 21st Century Business Herald predicts that if the merger is successful, the combined entity could surpass BYD and SAIC, becoming the largest automotive group in China with annual sales exceeding 5 million vehicles.
In fact, discussions about a merger between FAW and GAC have been ongoing since 2025. This latest speculation aligns with the Chinese government's strategy to promote mergers and acquisitions among state-owned enterprises.
On September 11, the National Development and Reform Commission, which oversees China's macroeconomic planning, held a joint press conference announcing its commitment to actively support the reform of large enterprises and facilitate mergers and acquisitions through market-oriented and legal approaches. The commission emphasized the need for core companies to effectively integrate research and development and production resources to avoid homogenization in product design and technology development.
However, the process of linking the shares of a central government-owned enterprise (FAW) with a local government-owned enterprise (GAC) involves various interests, and significant challenges are anticipated before any actual implementation. Last year, the Chinese government attempted to facilitate the merger of Dongfeng Motor and Changan Automobile, but ultimately, both companies maintained their independent status.
* This article has been translated by AI.
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