The Associated Press reports that China might block GM's sale of Hummer to Chinese company Sichuan Tengzhong Heavy Industrial Machinery Corp. The Chinese government has the power to block its firms' foreign acquisitions. Here's why they might block it, according to AP:
China's planning agency is likely to reject a Chinese company's bid to acquire General Motors Corp.'s Hummer unit, in part because its gas-guzzling vehicles conflict with Beijing's conservation goals, state radio reported.
The National Development and Reform Commission is also likely to say Sichuan Tengzhong Heavy Industrial Machinery Corp., a maker of construction machinery, lacks expertise to run Hummer, China National Radio said late Thursday. It cited no source.
If China does block the sale of Hummer, it would certainly be more bad news for GM. GM could use the cash. The acquisition falling through would also affect their reorganization plans, which probably make the assumption that Hummer gets sold. GM had shopped Hummer around for some time, which leads me to believe that finding a new buyer will not be easy.
The first reason given for China potentially blocking the sale is somewhat puzzling. China is not the first country that comes to mind when I think conservation. As for the second reason, I would also think that a company that designs construction machinery could almost certainly understand out how a Hummer works.
But maybe there's more to what China means by "lacking expertise to run Hummer." Could it be that China does not believe that Hummer will be profitable going forward, given global conservation and inevitable increases in oil prices? I'd probably agree. Maybe the Chinese government is trying to save Sichuan Tengzhong from itself, because it sees acquiring Hummer a losing proposition in the long-term.
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