17 February 2019

Everybody happy as Geely fulfills promises to local govts

Li Shufu {李書福}, chairman of private carmaker Geely Automobile Holdings (00175.HK), can now heave a sigh of relief following the inauguration of Volvo Cars Corp.’s Daqing plant in northeastern China’s Heilongjiang province in late September. Just before that, Volvo Cars also kicked off trial production at another plant in Chengdu, capital of the southwestern Sichuan province.

Back in 2010, the year Geely acquired Volvo Cars, Li made the commitment that the two plants would be fully operational by 2014, otherwise Daqing and Chengdu could withdraw their investments. For their part, the two cities pledged full support for the company to realize its plans. So, since Li has fulfilled his promise, everyone appears to be happy.

Chengdu and Daqing serve as the two pillars of Li’s vision to rejuvenate the ailing Swedish luxury auto brand in China. Under the plan, initial production capacity has been set at 125,000 units at both sites. Chengdu will make Volvo Cars’ hit marques such as S60L and XC60, while Daqing will mainly assemble other models like XC90 and S40.

For Chengdu and Daqing, their participation in Volvo Cars’ localization was also a race against each other. Even before the conclusion of the Volvo Cars deal, Li was already cherry-picking locations for the plants. The high-profile acquisition easily drummed up support, and Li sat back and watched as GDP-driven cadres, especially those from second and third-tier cities, engaged in a bidding war, offering generous doles and subsidies to host the Volvo Cars plants and boost their local economy.

Reports said an investment company owned by the Daqing municipal government splashed out billions of yuan for a 37 percent stake in Geely’s consortium for the Volvo Cars transaction, and the government of Shanghai’s Jiading district also contributed hefty money – Geely now runs a Volvo Cars research and development center there.

Financial support from Zhangjiakou, a lesser-known city in the eastern Jiangsu province, has also borne fruit; there’s now a Volvo Cars engine factory in the city. Chengdu, meanwhile, extended help in securing financing and land supply, paving the way for Volvo Cars to gain a foothold in the city.

Several local governments now have a combined stake of 49 percent in Volvo Cars’ China assets, according to some analysts’ estimates. 

That said, it’s likely that Geely may still want to repurchase those shares in the future for the sake of autonomy. As for the cadres, as long as the plants’ output can be reflected in their regional GDP statistics, they can be happy with that.

– Contact the writer at [email protected]



EJ Insight writer

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