Goldman gets into Chinese car industry
Goldman Sachs (GS) will put $250 million into Chinese car company Geely, according to several media reports. There is speculation that the money could be used for Geely to ramp up its manufacturing, or to make a bid for Volvo. Goldman's investment will be done through convertible bonds.
The capital infusion will probably be one in a long line of foreign capital being put into China's auto sector, if the central government will allow it. However, China may decide that it wants to fund its own car companies so that it reaps the benefit of any returns. Either way, the cash available will be plentiful as it would be hard to find a better manufacturing industry investment anywhere.
China will probably pass the U.S. as the world's largest car market this year. About 12 million light vehicles will be sold there this year. The largest country in the world, based on population, should support rapid growth in the auto industry for years; a tremendous number of Chinese still do not own cars.
The most direct way for banks to get capital into the Chinese market may not be to put the money into local companies which are largely controlled by the government, but to invest in large international companies which already have significant market share in China. It may be that firms like GM and VW are willing to take investment capital in their Chinese operations to super-charge growth. GM in particular may need additional money due to its weak balance sheet.
The race to get into the Chinese car market is now underway, so a lot of money is likely to chase the opportunity. This will probably give the auto companies access to very inexpensive capital.
Douglas A. McIntyre is an editor at 24/7 Wall St.