Sunday, December 6, 2009

Private Chinese Firms Don't Get Bank Loans? Think Again.

Just when you think you have it all figured out.

The Bank of China, one of China's Big Four state-owned banks, has been busy funding auto companies this week.

The Bank announced this week that it has approved a 20 billion yuan ($2.9 billion) line of credit for Beijing Auto Industry Holding Corp (BAIC). Some are speculating that this money may be used by BAIC in its continued pursuit of an overseas purchase, most likely Saab, or at least some of its assets.

BAIC is owned by the local Beijing government, so the fact that Bank of China is providing funds should not come as a big surprise. Bank of China and BAIC are both state-owned.

But BAIC is not the only Chinese auto company to get funding from Bank of China this week.

The Bank also announced that it will be providing a 15 billion yuan ($2.2 billion) line of credit to BYD, a private auto firm based in Shenzhen. (Announcement here in Chinese.) BYD, which is listed on the Hong Kong stock market, was made famous earlier this year because of an strategic investment by one of Warren Buffet's companies.

Though BYD did not confirm this, apparently the lending facility will be used to support BYD's R&D efforts in new energy vehicles and solar power generation.

This bit of news runs contrary to the story we always hear about private Chinese companies having difficulty getting financing. The biggest and strongest banks in China are, by design, state-owned, and therefore, the logic goes, they are only interested in supporting state-owned enterprises.

While China's government wants its state-owned banks to be profitable, and is happy to boast about it when they are, these banks, like any SOEs are tools of the state. They will be used to serve the ultimate interests of the state. In this particular case, I am guessing that it is in the interests of the central government to demonstrate their commitment to research and development in the area of new energy vehicles just prior to the Copenhagen summit.

While BYD has yet to put anything close to a significant number of its hybrid or pure electric vehicles on the road, they are, among all Chinese companies, probably the furthest along in development.