Who would be interested in a factory located far inland? Well, as it turns out, it doesn't really matter who is interested. While FAW wants to sell its factory, it has also placed strict conditions on who the purchaser can be. The purchaser must be a domestic auto firm with registered capital of at least seven billion RMB and annual revenue of 80 billion RMB. That limits the possibilities to only five: Changan of Chongqing, Bejing Auto, Dongfeng of Wuhan, Shanghai Auto or Guangzhou Auto.
However, if China's recent "big 4, small 4" designation is taken seriously, Beijing and Guangzhou would be dropped from the list as they will only be allowed to expand regionally, not nationally. So now we are down to only three possible purchasers: Changan, Shanghai and Dongfeng.
FAW, is one of only two centrally-owned automakers (
In a real market economy, FAW would decide it has too much capacity, put its factory up for sale, and accept the highest bid, regardless of who the bidder was. And such bidders might have included, not only Chinese auto firms, but also foreign auto firms or even a real estate firm.
The point here should not be surprising. It is that the Central Government intends to remain very much involved in the development of this industry. They understand very well that China's design capabilities are still in their infancy, and that foreign auto makers are viewing China as one of the few places in the world in which they can sell a significant number of cars.
Until recently, Chinese automakers have largely been content to learn manufacturing from their foreign JV partners, but the real key to growing an auto industry is not in manufacturing; it's in design. The Central Government is in the process of separating the sheep from the goats because they will want to see more concentrated efforts on R&D and less on just cranking out cars, half of the profits of which flow back out of the country.
FAW's factory will probably go to whichever among Changan, Shanghai or Guangzhou can demonstrate the ability to produce a high-quality, independently-designed sedan with national appeal, and quickly ramp up production.