New Trends of Car Enterprise Merger and Reorganization: "National Chess"


The Ministry of Industry and Information Technology issued the “Guidance Opinions on Accelerating the Promotion of Mergers and Reorganizations in Key Industries” the day before yesterday and advanced the nine key industries such as automobile, steel, cement, shipbuilding, electrolytic aluminum, rare earth, electronic information, medicine, and agricultural industry leading enterprises. Specific guidance for mergers and acquisitions of enterprises. As a pillar industry of the national economy, the automotive industry ranks first in mergers and reorganizations in major industries. It is widely expected in the automotive industry that as the auto market enters the “micro-growth” era, a new wave of mergers and restructurings will be triggered under the policy.

It is worth noting that, unlike previous practice of the revitalization of the automobile industry in deciding the “four big and four small” industry reorganization, this guidance has paid more attention to “a national chess game” and puts forward efforts to promote the horizontal merger and reorganization of entire vehicle companies, and hopes to open up parts and components. Industry, service areas, cross-border mergers and acquisitions and other major contexts to promote the deeper integration and strengthening of the automotive industry.

The top 10 vehicle companies must achieve 90% concentration

Compared with merger and reorganization measures in the adjustment and revitalization plans of major industries in 2009, this policy is unprecedented and more in-depth in promoting inter-firm integration. The guidance is issued by 12 ministries and commissions including the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Finance, and the Ministry of Commerce. The participation of financial institutions including the People's Bank of China, China Banking Regulatory Commission and China Securities Regulatory Commission also means that the policy will form a joint force to promote mergers and acquisitions. And promote the realization of market integration through the capital market.

The merger and restructuring target of the auto industry is: "By 2015, the industry concentration of the top 10 vehicle manufacturers will reach 90%, forming 3-5 large-scale automobile enterprise groups with core competitiveness." Car analyst Cui Dongshu told Nanfang Daily It said that 90% of industry concentration is not difficult to achieve. Because the market share of the top ten vehicle manufacturers in 2012 has reached 87.3%, an increase of 0.7 percentage points over the previous year. Next year's concentration will definitely continue to increase.

This guidance also gave up the “scale theory” and instead put forward the “3-5 large-scale automobile enterprise groups with core competitiveness”. Last year, SAIC Motor, China’s largest auto group, had a production and sales volume of close to 4.5 million, and Dongfeng Motors, which is ranked second, has also exceeded 3 million vehicles. However, if the core competitiveness, Chery, Great Wall, BYD, Geely and other car companies to develop their own brand of car-based, it is more representative. In fact, the Great Wall, Chery, and Geely have all entered the top ten in auto production and sales last year. SAIC's own-brand passenger car has just exceeded 200,000 vehicles annually.

Therefore, for the first few large groups, it will be necessary to achieve breakthroughs in the core competitiveness and the production and sales scale of self-owned brands in the coming years. For example, Dongfeng Motor Co., Ltd. focused on improving its core competence and internationalization level last year. It has established strategic cooperation with GETRAG and Germany-based Smith in the field of gearboxes and trailers and established the company’s first overseas R&D base through the acquisition of Swedish company T. Through these measures, Dongfeng’s external cooperation began to develop in the direction of controlling key technologies and key resources.

"National chess game" pushes its own brand

In contrast to previous practice of revitalizing the planning circle of the auto industry as a “national leader in the four major industries” as a national and regional reorganization leading company, this guidance focuses on “a national chess game” and focuses on promoting cross-regional integration of industries that rely on market forces rather than administrative intervention. . The guidelines clearly stated that “large-scale backbone enterprises are encouraged to carry out cross-regional and cross-ownership mergers and reorganizations; enterprises are encouraged to expand the industrial chain through mergers and reorganizations to form strategic alliances.” The first measure of the automobile industry proposes: “To promote the lateral orientation of vehicle companies. Mergers and acquisitions, and through mergers and acquisitions to promote the development of independent brand cars." Cui Dongshu believes that "horizontal mergers and reorganization" is to promote the reorganization between the major automotive groups, rather than the vertical restructuring of the same system. Horizontal mergers and reorganizations are more difficult and require an effective market model.

It can be found that many innovations of GAC Group have been included in the guidance of the merger and restructuring of car companies in the past few years. This included the reorganization of GAC Automobiles in the case of the reorganization of Changfeng Automobile, and the opening of a reorganization and consolidation of private enterprises by state-owned enterprises in the automotive industry in the case of GAC GIO. Last year, GAC and Chery also achieved strategic alliance cooperation. GAC's mergers, acquisitions, and expansion have been more reliant on market mechanisms. The integration of automotive resources of Changan Automobile and AVIC Automobile in the same system has not yet seen significant results. Changhe and Hafei, in particular, have not escaped the development difficulties due to integration with Changan.

The restructuring of Dongfeng and Fuqi, which will be launched next, is expected by the automotive industry. This will be the first case of a reorganization of local auto majors by state-owned auto companies. "This is a very good thing." Cui Dongshu believes that the current bottleneck of Fuqi is that the equity structure of its joint venture is complex and the development of its own brand is also under great pressure. By introducing Dongfeng, this "strong hand" can better coordinate Relationship between all parties and integration of resources for independent brand development. He believes that car groups such as Fuqi, including JAC, Brilliance, Jiangling, etc., may face difficulties in the future competition and trigger new mergers and reorganizations.

In addition to promoting the integration of the entire vehicle industry, this guidance also hopes to open up the context of the automotive industry, and proposes that it will promote the merger and reorganization of parts and components companies; support large-scale automotive companies to extend their service areas through mergers and acquisitions; and encourage auto companies to “go global”. Grasp the opportunity to launch cross-border mergers and acquisitions. In terms of the integration of parts and components industry, the policy will “support the key enterprises of spare parts to expand their scale through mergers and acquisitions, establish long-term strategic partnerships with vehicle manufacturers, develop strategic alliances, and achieve specialized division of labor and coordinated production”.

Difficulties in integration are still breaking the protection of local interests

Cui Dongshu believes that the biggest difficulty in the merger and reorganization of the automobile industry is still to break the protection of local interests. This will make it extremely difficult for the auto industry to reorganize and integrate for a long time. This guidance also proposes: “Give government guidance. Improve the corporate merger and reorganization service management system, and strive to eliminate institutional barriers to corporate mergers and reorganizations and standardize administrative practices.”

This can also be reflected in the case of GAC and Changan in the past. By reorganizing Changfeng Automobile, Guangzhou Automobile introduced two new joint ventures, namely GAC Fiat and GAC Mitsubishi, to Changsha. It built a new leader in the local automobile industry and promoted the development of the entire automobile industry chain. This requires Guangzhou to abandon the new vehicle and The landing of parts and components projects and the harmonious coordination of interests between the two places will enable GAC to smoothly achieve mergers and reorganizations in other places. In the process of reorganizing Changhe and Hafei, Chang’an failed to better drive the development of the automotive industry in Changhe, which has affected the integration of its resources.

At present, there are still more than 100 vehicle companies in China, which means that hundreds of small companies only occupy less than 15% of the market share. Due to insufficient market competition, these small companies still exist, or die without stagnation. Similar phenomena exist in the passenger car industry and the commercial vehicle industry. In fact, leading companies often can only merge bankrupt companies, pushing up the cost of mergers and reorganizations, and the costs of “shell resources” also exist for the expansion of factories located off-site. Cui Dongshu believes that at present, the leading car companies rely on their own ability development, and then implement expansion of factories in different places and integrate local backward production capacity, which is still less resistant.

Another problem is the integration of state-owned enterprises and private enterprises. This was preceded by GAC's reorganization of Gio. Private enterprises often have more flexible operating systems, and the integration of state-owned enterprises can promote the improvement of their operating capabilities and at the same time stimulate the vitality of state-owned enterprises. Now, with the rise of private cars such as the Great Wall and Geely, will they become the main force of mergers and acquisitions in the automobile industry in the future? Cui Dongshu is not optimistic about this. He believes that private enterprises' restructuring and integration of state-owned enterprises will face the problem of the loss of state-owned assets, and for the current private car companies, the implementation of restructuring and integration of state-owned enterprises is too costly, not yet the right time.

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