IMPORTANT NEWS: National Electric Vehicle Sweden has agreed to buy the assets of Saab Automobile and the sale is expected to be finalized during the summer.

Wednesday, September 28, 2011

This is where the bureaucrats will determine Saab's future

Swedish newspaper Sydsvenskan has a very interesting article today about China's National Reform and Development Commission and the decision the commission will have to make about Pang Da and Youngman's plan to become part owners of Saab.

Below is a translation.
This is where the bureaucrats will determine Saab's future

It's at the Chinese super-agency NDRC where Saab's fate will be decided. The authorities shall decide if Youngman and Pang Da will be allowed to invest in the Swedish carmaker. Ola Wong from Sydsvenskan is seeking answers to questions about how they look at Saab's future in China.

Picture from Sydsvenskan

On the South Yuetan street 38 in Beijing the National Reform and Development Commission, the NDRC, has its headquarters. There the bureaucrats are in ther process of deciding on if the Chinese companies Youngman and Pang Da will be allowed to invest in the bleeding Saab. The question is when and if an approval from the commission will come.

But it is not easy to get answers to such questions. NDRC is a closed organization. Sydsvenskan's reporter has repeatedly tried to get interviews with officials. When I go there I am not admitted into the building. An official says that we need to send a telefax with an interview requests. No one responds to our telefax.

As soon as I take out the camera an official comes and says that it is forbidden to take pictures of the building.

NDRC's mission is to enforce the Communist Party's plans for the country. But the question is how Saab fits in. Even industry experts and diplomats are uncertain. Saab's fate can be summarized in two points:

Can Saab provide China the technology they need?

Are the conditions there to make this a successful business and beneficial to China?

Youngman's CEO Rachel Pang said in early September that they expect the NDRC to make a decision within a month. That would mean no later than 15 October.

- The process with the NDRC is going very well, Rachel Pang said in an email on Monday, but she would not answer if she knows when the decision will come.

NDRC is not bound by any deadline, says Namrita Chow, senior analyst for the consulting company IHS Automotive in Shanghai.

- It took them almost a year to approve the recent joint venture between Chinese Changan and French PSA Peugeot Citroƫn.

Even the Volvo-Geely approval took about a year, Michael Ning, a spokesman for Volvo cars in China says in an email.

For others NDRC just gives a refusal. Such was the case when Sichuan Tenzhong wanted to buy American Hummer. The planning commission did not think the giant fuel consumer fit China. On the other hand they like environmental friendly vehicles. It is one of seven strategic industries identified in China's current five year plan.

- At present it is difficult to convince authorities that Saab affair is a good idea, says Dominik Declercq, chief representative in Beijing for the industry association European Automobile Manufacturers Association.

- One possibility is maybe if they can demonstrate that Saab has the technology to give China an environmental friendly vehicle, or that they promise to build a pure Chinese brand next to Saab says Declerq.

According to NDRC's latest guidelines foreign automotive investment is no longer encouraged. There are 40-50 players in the Chinese car market. In Europe, by comparison, there is less than 10. NDRC would like to see a move towards the situation in Europe.

- NDRC wants to reduce the number of car manufacturers in China and consolidate. The question is whether technology from Sweden is so interesting that they are willing to open for Saab, says Declerq, which adds that this is only speculation on his part.

Michal Meidan, China expert at consulting firm Eurasia Group, is more hopeful.

- There is a broad support for automakers to invest abroad, especially as the domestic market is cooling off.

She believes that would could block the deal is objections from Sweden.

- If the transaction is financially sound and there is no risk of political backlash, it will probably go through, says Meidan.

The reason that the situation is so unclear is that even the bureaucrats at the NDRC have been overwhelmed by development.

- They have themselves simply not so much experience of the regulatory framework, says an anonymous diplomat.

Ten years ago China had virtually no foreign investment. Now it's over $ 60 billion. That is a huge increase, says the diplomat.

- With regard to consumer products like cars, it is quite easy to count how many such acquisitions that have taken place.

During the financial crisis in 2008, China's foreign acquisitions increased quickly. In 2009, China became the third largest global investor in corporate acquisitions and mergers.

Now that the Western companies have once again been put on sale many expect a similar onslaught. China sits on a huge pile of foreign currency. Instead of building the pile higher it is better to finance the purchase of companies and natural resources abroad. The money can be channeled through state banks and investment funds.

But at the same time the authorities have been criticized after a series of bad business transactions. For example, state owned China Rail Construction lost $ 4.1 billion on a railway project in Mecca, Saudi Arabia. State owned Covec saw $ 400 million in losses in the construction of a motorway in Poland before they were forced to pull out. The Embassy report "China does business" refers to many, up to half of the major Chinese international acquisitions and mergers have been unsuccessful.

NDRC do not want to see more failures. They will therefore examine Youngman and Pang Da’s muscles and budget carefully. In addition, two quite different authorities in the Chinese bureaucracy jungle – the Ministry of Trade, Mofcom, and the State Administration of Foreign Exchange, Safe, must also give the thumbs up before Saab can get the money.

The great and decisive obstacle for Saab however, is currently on South Yuetan street 38 in Beijing.

I would like remind you about my own comments from yesterday regarding so called experts and analysts opinions on whether the NDRC will approve the investment or not:

It is only Saab, the Chinese partners Youngman and Pang Da and the Chinese authorities who have all the information. It is only these stakeholders who know what Saab can contribute to Youngman and Pang Da. It is only these stakeholders who have full insight into the technology that Saab has developed. If the deal will contribute to the Chinese automotive industry, the deal will be allowed. The so called experts have a very limited insight into all this, but still they assert the expertise to foresee political decisions in China.

And I would also like to add that Youngman, who is probably the stakeholder that is in closest contact with the decisions makers in China, still is convinced that the deal will go through. Why would they else transfer EUR 70 million to Saab this week?