China“s large-scale glass makers, led by Fuyao Glass Industry Group Co., Ltd., are set to benefit from the government“s new policy of closing ailing firms in order to bring the growth of output unde…
China“s large-scale glass makers, led by Fuyao Glass Industry Group Co., Ltd., are set to benefit from the government“s new policy of closing ailing firms in order to bring the growth of output under control. Six government organs, including the National Development and Reform Commission, Ministry of Construction and the People“s Bank of China, jointly announced an initiative on 7 December 2007, under which bigger glass companies are encouraged to acquire small ones. Regulators will also lift the policy hurdle for those wishing to enter the glass industry. Under the plan, the top ten glass makers, after improving manufacturing technology and product offering, will seize a 70% combined share of the local market in five years. The move is designed to revive China“s glass industry. China“s flat glass output has been the No. 1 in the world for the past 17 years but in the first nine months of 2006 most local players posted losses due to technological deficiencies as well as a product mix weighted towards lower quality items. Nine locally-listed glass companies earned a combined profit in the 1H of 2006 of CNY 265 million, down CNY 351 million, or 56.98% on the same period of 2005. Fuyao Glass, China“s largest automotive glass maker, recently announced the signing of a framework to issue CNY 111,277,019 A-shares to Goldman Sachs“ GS Capital Partners V Fund, L.P. The shares, representing a 9.98% stake, will be priced at CNY 8 each and cannot be sold to others within three years of the deal. Based in the southeastern province of Fujian, in the first nine months of 2006 Fuyao made net profits of CNY 450.3 million, up 41.9% on the same period of 2005. China“s glass industry consumes 32% more energy than foreign peers who use more advanced technology and despite the surplus of lower quality glass, the country still has to import value-added products to meet increasing demand. From 2004 to 2005, up to 47 float glass production lines, with a combined capacity of 140 million weight cases, were set up in China. Another 20 lines have just been completed or are currently being built, raising the risk of surpluses. China has as many as 52 float glass companies but the average production scale was only 6.8 million weight cases. In sharp contrast, the top four global players jointly hold a 41% share of the world“s flat glass market. Since April 2006, Beijing has issued measures to control 11 industries: cement, electrolytic aluminium, ferroalloy, coke, coal, calcium carbide, textiles, electric power, real estate, steel, as well as lead and zinc.