BEIJING, April 7 / PRNewswire / – The Chinese automaker FAW Group announced that it has signed a contract with 16 banks over a credit line of more than 1 trillion yuan ($ 144 billion) has signaled significant government support.
FILE PHOTO: A concept car will be shown at the FAW Group's Hongqi car factory, Chinese for "red flag", during a media presentation of the Auto China 2018 in Beijing, China on April 25, 2018. REUTERS / Damir Sagolj / file photo
FAW, one of the oldest Chinese automakers in China, said the funds would help with "future initiatives". However, in response to a request from Reuters, it was also noted that the line of credit was not in line with current capital requirements or that it had projects that would require large capital investment in the near future.
According to a FAW source, the credit line is part of a government plan to revive the economy in China's northeastern provinces. The person who was not allowed to speak publicly on this issue declined to be identified.
China's economy slowed to the weakest pace since the global financial crisis in the third quarter of the year, as data showed last week, partly driven by a slowdown in domestic auto production and vehicle sales.
The country's northeast has also suffered the brunt of a crackdown on polluting industries and industry, prompting the Chinese government planner to announce in January a comprehensive plan to support the region.
Gao Heng, an expert on the Society of Automotive Engineers of China, said that while the loan agreement is "symbolic" for the moment, he underlined government support for state-owned enterprises, the northeast region, and the auto market.
"This could boost confidence in SOEs that are temporarily in trouble," Gao said. "At the moment, though, it's pretty symbolic, we need to see her next move."
FAW is headquartered in Changchun, the provincial capital of Jilin, and employs about 150,000 people across the country. The listed subsidiary FAW Car Co Ltd (000800.SZ) saw a decline in sales and profits of around 70 percent in the first half of the year.
FAW's credit line agreement was signed at an event in Jilin attended by senior Chinese central bank officials, the National Development and Reform Commission and senior Chinese policymakers.
The line of credit also follows Chinese regulators' steps to calm nervous investors as a long-running debt-to-risk and trade-war with the US has begun to weigh on economic growth.
The largest Chinese automobile market saw a decline in sales of 12 percent in September. This is the strongest monthly decline in seven years, leading to concerns that it may shrink for the first time in decades this year.
Despite the uncertainty about how the funds would be used, investors welcomed the news on Thursday and increased its stake in FAW Car and Tianjin FAW Xiali Automobile Co Ltd (000927.SZ).
FAW also has joint ventures in China with Volkswagen AG (VOWG_p.DE), which manufactures VW and Audi vehicles, and the Japanese Toyota Motor Corp. (7203.T), which builds the Crown and Corolla models.
The 16 banks in the agreement with FAW include China Development Bank, China Construction Bank (601939.SS), Bank of China (601988.SS) and the Industrial and Commercial Bank of China (1398.HK).
There have been some precedents for huge credit lines in China. Conglomerate HNA Group, which faced high debt after a global deal, said end of 2017, credit lines with domestic banks of about 800 billion yuan.
Reporting by Yilei Sun in Beijing and Adam Jourdan in Shanghai; Additional reporting by the Shanghai Newsroom; Writing by Sayantani Ghosh; Editing by Edwina Gibbs