Daily Brief: China’s Suddenly Realized It’s Been Neglecting Its Car Industry

Daily Brief: China’s Suddenly Realized It’s Been Neglecting Its Car Industry

over 1 year ago3 mins

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The Chinese government is reportedly set to roll out measures to boost spending on the country’s car industry by $30 billion this year.

What does this mean?

Car sales in China – the world’s biggest auto market – have tailed off in the last few months, given that it’s both difficult and irrelevant to buy a car when you’re trapped in lockdown. In fact, there wasn’t a single person among Shanghai’s 25 million-strong population who bought one in April. And with the government now withdrawing subsidies designed to encourage drivers to buy EVs, demand could slide even more. But while the authorities taketh with one hand, they giveth with the other: state TV reported this week that the government is thinking about extending tax exemptions for EV buyers. That bodes well for the likes of Li Auto, Xpeng, Nio, and BYD, all of which saw their shares rise after the news.

Chinese EV stocks

Why should I care?

Zooming in: It’s BMW’s time to shine.

BMW will be pleased to hear it: the German carmaker – whose Chinese sales fell in the first quarter from the same time in 2021 – announced on Thursday that production is now underway at its new $2.2 billion plant, which it’s hoping will increase its annual EV output in China by nearly 20%. The plant is BMW’s third assembly facility in the country, and it’s been designed to produce only enough EVs to meet demand, rather than the mass production lines of old.

The bigger picture: Self-inflicted wounds.

China’s lockdowns might’ve done a number on its economy, but there could be an even bigger risk to the country in the form of its languishing property market. The sector represents around 20% of the country’s output, and it’s been left in tatters by the government’s tough stance. In fact, Goldman Sachs is expecting the sector to drag economic growth down by 1.4 percentage points this year.

China housing market
Source: The Wall Street Journal, Wind

Keep reading for our next story...

Major Deals Across Europe Are At Risk

Deals image

Analysis out on Thursday showed that at least $25 billion worth of deals in Europe are at risk of collapsing.

What does this mean?

After more than a decade of willy-nilly lending, banks are suddenly becoming less willing to stump up for major mergers and acquisitions. Even the biggest banks are casting a sidelong glance at the choppy markets and slashing the value of the loans they give out, nervous that they won’t be able to sell that debt on to investors like they normally would. They’re right to be cautious: the banks that lent Clayton, Dubilier & Rice $8 billion to help buy UK supermarket chain Morrisons have struggled to pass on that debt in the form of bonds. That’s got investors worried that other deals – including the mooted $6 billion-plus buyout of British drugstore chain Boots – might not be able to get the financing they need.

PE purchases down

Why should I care?

Zooming in: Plan B.

Buyers that want to go ahead with deals do have a couple of other options, mind you. The first is to fund a higher proportion of the deal by offering up stock as payment. The second is to seek out alternative ways to borrow: banks’ reluctance to lend has opened the door to private debt firms that have amassed more than $1 trillion to help fill the gap – albeit at higher rates of interest.

For markets: Brexit strikes again.

It’s not just dealmaking that the UK is struggling with: the share of British IPOs compared to those in Europe has been shrinking since the country voted for Brexit in 2016. A series of high-profile flops over the past two years certainly hasn't helped, with the likes of Deliveroo, Wise, and THG all down more than 60% since listing. The country’s post-Brexit ambition to boost its standing as a global financial center has been going well, then.

UK share of European deals
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