By Trefor Moss
More workers in the global auto industry are relying on Chinese
companies to sign their paychecks these days.
China-based businesses have been sinking money into various
automotive operations -- from glass and tire makers to technology
developers and car makers -- for several years, reflecting
Beijing's goal of eventually dominating the world's car
business.
That effort accelerated during the first half of 2017, with
eight overseas deals totaling more than $5.5 billion in Chinese
investments, compared to nine investments for all of last year.
The list includes the takeover of troubled Japanese air bag
maker Takata Corp., the purchase of a flying-car developer and the
acquisition of a sizable stake in Tesla Inc. by gaming and social
media giant Tencent Holding Ltd.
China's overseas auto-industry investments -- more than $34
billion since 2008 -- have come in spite of a broad government
clampdown on foreign acquisitions.
That reflects two factors, according to Michael Dunne, president
of Dunne Automotive, an advisory firm. One is that Chinese
automotive companies, unlike their peers in other sectors such as
entertainment, have picked their targets carefully and secured good
value for the money, he said.
The other is that the automotive sector clearly has government
support at the highest levels to take a commanding position in the
global market, he said.
"There is no question their ambition is to be No. 1," said Mr.
Dunne. He likened the approach to the ancient Chinese game of Go
"where you gradually encircle your opponent by taking strategic
assets."
In many cases, Chinese companies are doing this by acquiring
parts suppliers and small car makers, or setting up joint ventures
on foreign soil. U.S. assets have been high on China's shopping
list.
Zhejiang Geely Holding Group Co. is investing $500 million to
build a Volvo plant that will employ 2,000 people in Ridgeville
S.C., for example, while auto-glass producer Fuyao Glass Industry
Group Co. has spent $1 billion on U.S. manufacturing facilities,
including reopening a former General Motors Co. plant in Moraine,
Ohio, that will employ 2,500.
Among the eight deals chalked up in the first half of 2017 was
Ningbo Joyson Electronic Corp.'s deal last month for bankrupt
air-bag maker Takata. If finalized, the $1.59 billion purchase will
be Ningbo Joyson's fourth in two years -- a streak that included
last year's $920 million acquisition of Michigan-based Key Safety
Systems Inc., maker of air bags and other auto-safety
equipment.
Beijing has given vehicle-industry firms free rein to expand
even as it tamps down acquisitions in other sectors, said Chen
Yang, Ningbo Joyson's communications director, underscoring the car
sector's strategic value to Chinese policy makers.
"We have had a lot of support from the relevant government
departments," said Mr. Chen. "You can't do overseas acquisitions
without government support."
Geely is the most active Chinese car manufacturers in terms of
foreign takeovers. It bought struggling Malaysian auto maker Proton
along with its Lotus Cars unit for $235 million in March, before
acquiring U.S. flying-car start-up Terrafugia in June for an
undisclosed fee.
Geely's 2010 acquisition and subsequent turnaround of Volvo
Cars, previously a money-losing unit of Ford Motor Co., is often
cited as the most successful example of a Chinese auto acquisition
to date: as well as reviving the Swedish brand, Geely used Volvo's
technology to upgrade its own product lines.
Geely's absorption of foreign technology and knowhow has put it
"in a class by itself" among Chinese auto makers, according to Mr.
Dunne, vindicating acquisitions that industry analysts initially
questioned.
Other Chinese buyers have preferred to take strategic stakes in
foreign vehicle makers rather than make outright purchases, as when
Tencent Holdings Ltd. spent $1.8 billion on a 5% stake in Tesla in
March.
China National Chemical Corp.'s $7.86 billion purchase of
Italian tire maker Pirelli in 2015 remains the biggest Chinese
auto-sector foray to date. The nation's largest supplier to auto
makers, Wanxiang Group, is also a major player, claiming a 12%
share of the international car-parts market outside China.
Mr. Chen of Ningbo Joyson said Chinese auto suppliers are still
closing the gap on world leaders such as Germany's Robert Bosch
GmbH and Japan's Denso Corp., some of which have been offloading
surplus units to Chinese buyers as they themselves move into more
high-tech fields thought to represent the future of the car
business, such as automation and connectivity.
Bosch, for example, sold its starter-motor division to Zhengzhou
Coal Mining Machinery Group Co. in May.
Ningbo Joyson, however, is investing in cutting-edge technology
rather than assets that Western rivals no longer want, but is still
playing catch-up, Mr. Chen said. "China does not yet have one
single world-class auto company," he said.
Chinese companies that are doubling down on specific sub-sectors
of the auto-parts market may have a best chance of securing global
dominance than those aiming to diversify, said Robin Zhu, an auto
analyst at Bernstein Research.
Ningbo Joyson's acquisition of Key Systems and Takata will make
it a top-three global player in the vehicle safety segment,
provided it can successfully stitch its various units together, he
said, while auto-glass maker Fuyao, car trim maker Minth Group and
vehicle interior supplier Yanfeng are among the other Chinese
suppliers in growing command of their specialty.
Yet even as China's auto industry racks up overseas purchases,
it remains behind overall, Mr. Zhu said: "I don't think we'll see a
Chinese Bosch anytime soon."
--Lilian Lin in Beijing contributed to this article.
Write to Trefor Moss at Trefor.Moss@wsj.com
(END) Dow Jones Newswires
July 18, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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