Special Report

November 27, 2014

The Role that Capital Market Plays in the growth of Automotive Industry

The automotive industry is capital-intensive industry; many companies enter the capital market through an initial public offering or issuance of bonds to increase their capitals. Thus, how to achieve the growth of automotive industry via financing in the capital markets, mergers and overseas expansion become the key topic of the subject, “The role that capital market plays in the growth of automotive industry”.

An indispensable tool and platform

Qian Cheng, Vice President of Corporate Strategy and International Business of Weichai Power Co., Ltd., said that in the past five years, China has become the world’s largest auto market, behind this must be in the past ten years, China made the world’s largest investment. At present, China’s auto companies have state-owned companies, private companies, and more foreign investments and joint ventures. However, majority of them are listed companies. Configuring the investment of resources to achieve development through the capital market well indicates that the capital market is an indispensable tool and platform for the automotive industry.

Qian Cheng believes that with the new round of China’s market-oriented reforms and equity diversification, the development of the market and the industry will create a lot of opportunities for listed companies to raise capitals. This is mainly reflected in three aspects: First, the auto market is in the era of global integration; second, all companies are in the pursuit of integration and the development of its own power system; third, with the improvement of regulations, the global achieves technology convergence and shares the effect of scales.

Mergers and adjustment are the future development trend

Ricky Lau, Partner, TPG Capital said that the automotive industry from 2006 to 2011 was a period of rapid development with many large enterprises emerging in the market. Through some adjustments, the automotive industry has entered into a stable growth period with development mainly from the debt market.

Ricky Lau strongly agreed that mergers and adjustment are necessary factors in the future development of the automotive industry. Combined with the market situation and future development, the future of the automotive industry is bound to look forward to, he believes, some large companies in the capital markets need to gradually rectify and integrate their business with great confidence.

The booster of capital market is a double-edged sword

China Rundong Automobile Group Co., Ltd. joint company secretary Zhou Jian said that the auto dealer industry is a capital-intensive and cash flow-driven industry, which means its demand for capitals is greater than in other industries. Summing up the past ten years of development experience, Zhou Jian supported that the key function of the capital market in terms of an enterprise’s development is to guide the process of capital markets strategy and implementation strategies in the enterprise. It absolutely requires companies to maintain by themselves, and puts the capital market as the main force. Zhou Jian said that the capital market contemporary, while the enterprise is sustained; how to cooperate between the two is crucial. Meanwhile, the capital market as a booster is actually a double-edged sword; it plays the positive role, and also has negative effects.

Periodicity of capital market

Finally, as an investor, Gordon Shaw, Managing Director of Baring Private Equity Asia argued that the capital market has strong periodicity, and the role of private equity funds is rational to determine the development of the market. Usually, the chess of private placement are pre-IPO investors to finish their tasks on certain stage, while exit the chess gradually once the companies turn to be listed. There is another function of private placement, during the financial turmoil; many listed companies have fewer requirements than other non-listed companies in terms of shares. Therefore, private investors are more rational with even broader vision, and it is possible to allow companies to have more reasonable share values once the companies turn to be listed companies.

-Published on page#46, November-2014 edition of MOBILE WORLD Magazine

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