BEIJING/SHANGHAI (Reuters) - China’s state-owned automaker FAW Group said it signed a deal with 16 banks for a credit line worth more than 1 trillion yuan ($144 billion), an eye-catching amount analysts said was mostly symbolic, albeit an important signal of government support.
FAW, one of China’s oldest state carmakers, said the funds would help with “future initiatives”. But in a response to a Reuters query it also said the credit line does not represent its current capital requirements or that it had projects which would require major capital investment in the near future.
According to an FAW source, the credit line is part of a government plan to revitalise the economies of China’s northeastern provinces. The person, who was not authorised to speak publicly on the matter, declined to be identified.
China’s economy slowed to its weakest pace since the global financial crisis in the third quarter of the year, data last week showed, hit in part by a slowdown in domestic car manufacturing and vehicle sales.
The country’s rustbelt northeast has also borne the brunt of a crackdown on polluting industries and manufacturing, prompting China’s state planner to announce a broad plan in January to support the region.
Gao Heng, an expert at the Society of Automotive Engineers of China, said while the credit agreement was “symbolic” for the moment, it underscored government support for state-owned firms, the northeast region and the auto market.
“This may boost confidence for SOEs that are temporarily in difficulty,” said Gao. “However, at the moment, it is quite symbolic. We need to see their next step.”
FAW is headquartered in Changchun, the provincial capital of Jilin, and employs around 150,000 people around the country. Its listed subsidiary FAW Car Co Ltd saw sales stall in the first half of the year and profits tumble some 70 percent.
FAW’s credit line agreement was signed at an event in Jilin, with senior officials from China’s central bank, the National Development and Reform Commission and top Chinese policy bankers in attendance.
The credit line also follows moves by Chinese regulators to calm nervous investors as a long-running campaign to tackle debt risks and the trade war with the United States have started to weigh on economic growth.
China’s car market, the world’s biggest, saw sales drop 12 percent in September, the steepest monthly decline in seven years, stoking concerns it could contract this year for the first time in decades.
Despite uncertainty over how the funds would be used, investors cheered the news on Thursday, driving up shares in FAW Car and Tianjin FAW Xiali Automobile Co Ltd.
FAW also has joint ventures in China with Volkswagen AG which produces VW and Audi cars, and Japan’s Toyota Motor Corp, which builds the Crown and Corolla models.
The 16 banks in the agreement with FAW include China Development Bank, China Construction Bank, Bank of China and the Industrial and Commercial Bank of China.
There has been some precedent for huge credit lines in China. Conglomerate HNA Group, which has grappled with high debt levels after a global deal spree, said in late 2017 it had credit lines with domestic banks of around 800 billion yuan.
($1 = 6.9427 Chinese yuan)
Reporting by Yilei Sun in Beijing and Adam Jourdan in Shanghai; Additional reporting by Shanghai newsroom; Writing by Sayantani Ghosh; Editing by Edwina Gibbs