GAC Group Photo: VCG

Shares of Guangzhou Automobile Group Co Ltd (GAC) surged on Tuesday after the firm announced a major asset restructuring plan a day earlier. The Hong Kong-listed shares closed 2.58 percent higher on Tuesday as investors bet the intended tie-up with FAW Group (FAWG) will sharpen the competitiveness of China's state-owned auto giants.

GAC, a Chinese state-owned carmaker, disclosed in a filing on Monday the plan to acquire part of the equity interest in a certain automobile manufacturing joint venture held by FAWG.

With a view to promoting the optimization and integration of industrial resources among Chinese state-owned enterprises, as well as to enhance the company's operational efficiency, GAC plans to acquire part of the equity interest in a certain automobile manufacturing joint venture held by FAWG and will raise more funds through the issuance of A shares, according to the filing.

According to preliminary estimates, upon completion of the transaction, FAWG will become the second-largest and a strategically influential shareholder of GAC, the filing said. 

In accordance with relevant regulatory requirements, as the reorganization involves an overseas-listed company, GAC has temporarily deferred disclosing the name of the target assets, according to the filing.

The planned tie-up comes against a policy backdrop that encourages resource consolidation and industrial upgrading in China's automobile manufacturers, Chinese experts said.

The Ministry of Industry and Information Technology on Friday released a development plan for intelligent and connected new-energy vehicles (NEVs) for the 15th Five-Year Plan (2026-30) period. The plan calls for promoting law‑based mergers, acquisitions and cross‑regional consolidation among automobile enterprises. Backward and inefficient production capacity will be phased out in an orderly manner to improve the overall capacity utilization rate of the industry.

Cui Dongshu, secretary-general of the China Passenger Car Association, told the Global Times that the intended integration aligns with government policies to upgrade China's auto industry. 

"It will be a market-driven, law-based practice to consolidate resources and optimize the industrial structure. The FAWG-GAC integration will deliver clear improvement in R&D layout and industrial chain coordination, which is positive for state-owned automakers," Cui said.

Zhang Xiang, secretary-general of the International Intelligent Vehicle Engineering Association, told the Global Times on Tuesday that the shift toward new-energy and intelligent vehicles has pushed R&D costs sharply higher, especially software spending, which are difficult for a single carmaker to bear. Bringing FAWG and GAC together allows both sides to pool their strengths. 

FAWG has solid advantage in truck manufacturing while GAC is strong in passenger cars, with well-received homegrown brands and expertise in EV research and development, as well as localized manufacturing overseas, Zhang said.

"The restructuring can phase out inefficient production capacity, improve operational efficiency through sharing vehicle platforms. And, integrated supply chains will help cut cost of components. This is a necessary step for China to evolve from a large auto market into an automotive powerhouse and put an end to disorderly competition and price wars," Zhang said.

China aims to join the ranks of the world's automotive powerhouses by 2030, with stronger advantages across the entire industrial chain of intelligent connected NEVs, according to the five-year industry development plan announced on Friday.

The plan identifies intelligent connected NEVs as a key direction for transforming the auto industry, as China steps up efforts to phase in a modern industrial system. It sets targets for NEVs to account for 70 percent of new passenger car sales by 2030.

The NEVs built up its dominant position in Chinese market in August, accounting for a record 60.6 percent of all new car sales, according to the China Association of Automobile Manufacturers.