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Business

Executive swap fuels talk of Chinese auto megamerger

Beijing could create national champion to compete for electric-car dominance

Xu Liuping, left, moves from China Changan Automobile Industry (Group) to peer FAW Group.

CHONGQING/GUANGZHOU -- A reshuffle of top officials has prompted speculation that China may engineer a merger among a trio of major state-owned automakers, creating a single giant with the scale to lead the industry's global transition.

Xu Liuping -- chairman of defense company China South Industries Group, which has China Changan Automobile Industry (Group) under its umbrella -- becomes chairman of FAW Group in a move announced Wednesday. He switches roles with Xu Ping, who will also lead Changan, of which Chongqing Changan Automobile is a core group member.

Xu Ping has also chaired Dongfeng Motor Group, moving to FAW in 2015 as part of a similar switch. After that move, the two automakers collaborated on such projects as technology to make vehicles lighter. Similarly, the upcoming swap is being interpreted as an order from the Communist Party government for the three automakers to work together, according to a Changan executive.

Though concrete discussions have yet to take place, likely areas of cooperation include joint development of electric vehicles and autonomous-driving technology using artificial intelligence.

A three-way merger is also believed to be on the table. A top executive at one of the automakers did not deny the possibility, and reports of a move in that direction are cropping up in Chinese media.

Insiders see the game of executive musical chairs as preparation for future consolidation. Ma Guoqiang, the first chairman of China Baowu Steel Group, spent time leading both of the companies that combined last year to create the steel giant.

China has moved to tighten regulations on gasoline-fueled vehicles to pressure foreign automakers to build electric cars here. The aim is to promote the transfer of technology for the next generation of vehicles to its domestic auto industry, putting it in position to capitalize on the transition to electric.

Yet the country has cultivated no big automakers that could make full use of this opportunity. The industry's current structure, with relative small fry partnering with such foreign players as Toyota Motor and Volkswagen, gives Chinese companies little chance to build up their brands, leaving them unlikely to succeed abroad.

Merging Changan, FAW and Dongfeng could redraw the map. Though the trio sell fewer than 4 million vehicles a year worldwide under their own brands, adding in joint production with foreign companies brings the total to more than 10 million to put them on a par with the global top three. The government likely thinks that integrating them -- bringing together their technology and capital -- would create a solid foundation from which to take on rivals from Japan, the U.S. and Europe.

But actually doing so would be no simple matter. The idea would probably not go over well with foreign partners of the automakers. A merger would also raise the risk of proprietary information from the individual companies leaking to foreign competition.

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