China could force major automakers to merge

China’s automotive industry is huge and moving quickly, and it is sometimes nearly impossible to follow without flowcharts and magnifying glasses. Even major Western players like Toyota and Volkswagen are deeply rooted in the market and operate multiple joint ventures that cannot overlap.

In an increasingly competitive market, hundreds of brands (many owned brands that are occupying space, and the Chinese government is now pushing for a more streamlined approach. The goal is to consolidate state-backed major automakers to increase efficiency, reduce redundancy and accelerate the country’s transfer to electric vehicles.

Read: China’s Dongfeng launches $25,000 Nammi Box EV in Europe

At a recent event in Beijing, the vice chairman of China’s State-owned Assets Supervision and State Council Administration Commission called on automakers to reorganize and reoperate. Considering that by bringing together development and manufacturing resources, these companies may become more competitive, especially for agile private sector brands.

The committee oversees approximately 100 state-owned enterprises, such as Chongqing Changan Automobile, Dongfeng Motor Corp and Nikkei Asia’s China FAW Group Report.

A Morgan Stanley analyst said of the potential deal: “If achieved, the restructuring will be an important step towards industry integration and will be crucial to China’s automotive industry in the long run.”

The momentum behind the merger

“The announcements from both companies clearly point to potential mergers for state-owned parents, although they have no clear remarks on that,” said Ivan Li, fund manager at Loyal Wealth Management. He added that the government may see the merger as a way to reduce internal competition and better position long-term successful industries.

Joint ventures still play a key role

Despite the poor performance of EVs, the two companies will still be deeply integrated into China’s wider automotive ecosystem. Dongfeng maintains a joint venture with Nissan, Honda, Peugeot and Citroen, while Changan works with Ford and Mazda. These alliances may complicate any merger, but they also emphasize the strategic value of the two companies in the global market.