A recent Communist Party circular, warning officials of “dangerous western values,” appears to have been challenged from inside the ranks of the party leadership in Beijing.
Those who have written the circular “consider the people’s legitimate calls for reform as activities by hostile forces and ‘dissidents’ and thus wrongly estimating and analysing the situation,” Yang Tianshi, a senior scholar and adviser, wrote in an essay shared online.
The Central Committee circular, briefing concerning the situation in the ideological sphere, or also known as “Document No 9,” has caused concern among Chinese liberals. It suggests the Communist Party might have taken a more conservative, authoritarian path in the first months of Xi Jinping’s presidency.
The document has not been published. Its content can only be deduced from reports on party cadre briefings, which appeared at the beginning of the month. These references have, however, mostly been promptly deleted from Chinese news portals, blogs and social media to avoid public debate.
Cadres should “strengthen the guidance of public opinion, purify the Internet environment, convey more positive energy, bring more positive voices,” the circular read, according to one such meeting reported in Xianyang in Shaanxi.
Yang, a 77-year-old historian known for his research on Chiang Kai-Shek, is a member of the Central Literature and History Institute, an advisory body of senior academics to the State Council. He has shared his views with an acquaintance, who uploaded the essay online, where it has quickly gained attention.
Yang argues that those who wrote the circular mistook calls for more respect and enforcements of rights guaranteed in the Chinese constitution as calls for “westernisation”.
“For some time, people have called for the enactment and implementation of the constitution from 1982, to realise constitutional governance and have even called for the realisation of a ‘dream of constitutional governance’,” he writes.
“Many people have made suggestions in newspapers and on the internet, petitioned, jointly signed statements and even unfurled banners on the streets,” he wrote. “I think, these are all legal, reasonable, legitimate expressions of concern (…) for the rightful leadership of the Communist Party.”
China’s courts currently cannot enforce freedoms guaranteed by the constitution, such as freedom of expression and of the press.
Xi Jinping raised hopes for change when he participated at a ceremony commemorating the 30th anniversary of the constitution on December 4. This was one of his first high-profile speeches after assuming the party leadership in November.
“No organisation or individual has the privilege to overstep the constitution and the law, and any violation of the constitution and the law must be investigated,” he reportedly said.
A month later, journalists with the liberal Southern Weekly went on strike in Guangzhou to protest a censor’s deletion of their new year’s editorial. This had alluded to Xi’s speech and the “dream of constitutional governance”.
In February, hundreds of intellectuals signed a petition urging China to ratify an international human rights treaty it signed in the 1990s, which reiterates some rights guaranteed in the Chinese constitution.
Over the last weeks, several state-run publications have issued scathing rebukes for such calls, saying they would lead to chaos and were aimed at copying a Western model.
“Those who drafted document number nine fail to realise that those who demand the ‘protection’ and ‘implementation’ of the constitution refer to the (Chinese) constitution from 1982,” writes Yang. They don’t want “the American constitution, and also don’t want to abolish the 1982 constitution and get another one.”
“A country’s citizens demand the protection and implementation of their own constitution, what’s wrong with that? Why not?”, writes Yang.
“An old intellectual can write these things, and it’s great that he does it,” said Wang Jiangsong, a philosophy professor at the China Institute of Industrial Relations in Beijing. “I can’t.”
Source: SCMP “Chinese scholar challenges party in constitutional debate”
China says constitutional rule is an empty dream of “misguided intellectuals” dated May 22, 2013
China: Xi Jinping Stresses Promoting Rule of Law dated February 24, 2013
A North Korean envoy told China’s president on Friday that his reclusive country was willing to take “positive actions” to ensure peace and stability on the Korean peninsula, as China steps up diplomatic efforts to bring Pyongyang back to talks.
But Choe Ryong-hae, a special envoy of North Korean leader Kim Jong-un, made no offer to abandon North Korea’s nuclear program. The United States insists North Korea takes meaningful steps on denuclearization before there can be dialogue.
Choe met Chinese officials, including President Xi Jinping, in the highest-ranking visit by an official from Pyongyang in about six months.
Chinese state media said Choe presented a hand-written letter from Kim to Xi at Beijing’s Great Hall of the People. Media provided no details of its contents.
“North Korea is willing to make joint efforts with all parties to appropriately resolve related issues through multilateral dialogue and consultations like the six-party talks, and maintain peace and stability on the peninsula,” the official Xinhua news service cited Choe as telling Xi.
“To this end, North Korea is willing to take positive actions,” Choe added.
Xi told Choe that the denuclearization of the peninsula was an aspiration of all peoples and an inevitable trend, saying problems should be resolved through talks.
“China hopes all sides exercise calm and restraint, push for a lessening of tensions, restart the six-party talks process and make unremitting efforts … for long-lasting peace and stability,” Xi said.
China has repeatedly urged North Korea to return to the so-called six party talks process, aimed at denuclearization.
The United States and its allies believe the North violated a 2005 aid-for-denuclearization deal by conducting a nuclear test in 2006 and pursuing a uranium enrichment program that would give it a second path to a nuclear weapon in addition to its plutonium-based program.
The six-party aid-for-disarmament talks, involving the two Koreas, the United States, Japan, Russia and host China, collapsed in 2008 when the North walked away from the deal.
China, North Korea’s only real ally, has been pushing for a return to talks after weeks of bellicose words from Pyongyang following new United Nations sanctions after the North’s third nuclear test in February.
Russia welcomed North Korea’s declaration of readiness to return to talks and said it deserved a “a positive assessment”, the Interfax news agency quoted Russian Foreign Ministry special envoy Grigory Logvinov as saying.
China has looked on nervously at the ratcheting up of tension, fearful a misstep could plunge the peninsula into war which could envelop northeastern China.
Fan Chonglong, vice chairman of China’s Central Military Commission, expressed that worry in a meeting with Choe.
“In recent years, the state of affairs around the Korean peninsula nuclear issue frequently turns into one escalation of tensions after another,” China’s Xinhua state news agency quoted Fan as saying.
“The conflicting strategies of all parties have intensified, jeopardizing peace,” Fan said.
China has increasingly expressed its impatience with North Korea, signing up for the new U.N. sanctions and curtailing Chinese banks’ contacts with their North Korean counterparts.
Choe told Fan that peace could not be assured although North Korea wanted it in order to build the country, and it was willing to work with all sides in solving problems, Xinhua said.
“The situation on the Korean peninsula and in Northeast Asia is complex and extraordinary, and there is no guarantee of peace,” Choe was quoted as saying.
Cai Jian, a North Korean expert at Shanghai’s Fudan University, said that while such high-level contact between the two countries was important, especially following the chilling of ties, he did not see a quick resumption of six-party talks.
“The U.S. says if North Korea doesn’t clearly renounce its nuclear program, it won’t return to the six-party talks. But if the international community doesn’t hold peace talks with North Korea, then North Korea will use that time to develop its nuclear weapons and missiles,” Cai said.
Choe and his entourage spent three days in Beijing in full military regalia, in contrast to the mostly civilian leaders he met, though he changed out of his uniform to meet Xi.
“Sending Choe in military uniforms as an envoy to China means North Korea still wants to stick to their right to have a nuclear arsenal,” said Chang Yong-seok, a senior researcher at the Institute for Peace Affairs at Seoul National University.
Choe was dispatched at this time because North Korea is mindful of Xi’s talks with U.S. President Barack Obama in early June, Chang said.
Xi is due to hold his first meeting with Obama in the United States and North Korea is expected to be high on the agenda.
South Korean President Park Geun-hye plans to make a state visit to China at the end of June, presidential spokeswoman Kim Haing said on Friday.
“Though China says it can’t do everything alone, China still is a country that can exercise considerable influence” over North Korea, Park said during a meeting with U.S. security experts on Thursday.
Source: Reuters “North Korea says will take ‘positive steps’ for peace”
As evidence mounts that China’s economy is losing momentum, economists are fast abandoning their rosy recovery forecasts and bracing for what could be the country’s slowest growth rate in 23 years.
In the space of five months, analysts have swung from confidently predicting a modest pick-up in the world’s second-biggest economy to pondering the chance that China will miss its own 7.5 percent growth target this year.
Concerns that Beijing’s growth target may be under threat came to the fore on Thursday, when a preliminary survey of Chinese factories showed manufacturing activity shrank for the first time in seven months in May after both new domestic and export orders fell.
“Yes, the 7.5 percent target is under threat,” said Ken Peng, an economist at BNP Paribas in Beijing.
“China does not have a recession, but there will not be a recovery.”
Unlike previous years when any wobble in the Chinese growth engine was countered with heavy government intervention to stabilize activity, economists are counting on things being different this time.
There will be no big-bang stimulus like the 4 trillion yuan ($652 billion) package unveiled after the 2008/09 financial crisis to spur growth, analysts say. Instead, leaders appear to be banking on China adjusting to a new norm of slower and hopefully better-quality growth that requires less state planning.
Sources close to Beijing told Reuters this week that China’s plan to spend $6.5 trillion to urbanize its economy is running into snags as the government weighs the pros and cons of another spending binge that would escalate local debt problems and likely add to inflationary pressures.
Just how much growth will cool without policy action is difficult guesswork, but a string of underwhelming Chinese economic data have led some economists to contemplate worst-case scenarios of growth sinking below 7 percent in 2013.
“What investors are worried about is whether the situation in China right now is a lot more menacing than growth slowing to the 7 handle,” Tao Wang said in a note this week after cutting her 2013 gross domestic product forecast to 7.7 percent, from 8 percent.
It was always a close call.
Forecasts of a mild economic revival in China were predicated on activity picking up to 8 percent in 2013, quickening a shade from last year’s 7.8 percent, which was the worst showing in 13 years.
And calls for an economic cooldown now centre on growth dipping below 8 percent, but still above the government’s increasingly-vulnerable 7.5 percent target.
The last time China’s growth sunk below 7.5 percent was in 1990, when the economy expanded by just 3.9 percent.
Even before Thursday’s dismal survey results of Chinese factories, a host of banks had started slashing their 2013 growth estimates for China, and more are set to do so.
Bank of America-Merrill Lynch pared its growth forecast this month to 7.6 percent from 8 percent, Standard Chartered cut its estimate to 7.7 percent from 8.3 percent, and ING last month reduced its prediction to 7.8 percent from 9 percent.
BNP Paribas, Credit Suisse and Societe Generale are all in the midst of revising their 2013 growth forecasts.
To complicate matters, analysts cite different reasons for what is hobbling China’s economic growth, which unexpectedly eased in the first quarter after an initial promising rebound fizzled in just three months.
Lackluster wage growth, which is at a five-year low, is the biggest drag on consumption, some say. A government campaign to curb wasteful public spending is also hurting retail sales.
Others say anemic growth in factory output and trade is offsetting resilient investment, while some argue that government infrastructure spending has waned amid tighter state controls over alternative financing.
Global demand also has remained stubbornly weak, with the euro zone now in its longest-ever recession, offsetting some signs of improvement in the United States.
One of the rare points of agreement is that China’s property sector – the one industry that the government wants to slow – is ironically on a rebound.
The other is that China’s days of double-digit economic growth rates are over, and that the economic structure needs to be changed to let consumption overtake investment as the most important driver of growth.
“What the last couple of months has shown is that we have exhausted this China growth model and what we need now is the next China growth model,” said Alistair Thornton, an economist at IHS. ($1 = 6.1340 Chinese yuan)
Source: Reuters “Rosy China growth forecasts fade on further signs of slowdown”
China’s factory activity shrank for the first time in seven months in May as new orders fell, a preliminary manufacturing survey showed, entrenching fears that its economic recovery has stalled and that a sharper cooldown may be imminent.
The flash HSBC Purchasing Managers’ Index (PMI) for May fell to 49.6, slipping under the 50-point level demarcating expansion from contraction for the first since October and sending Asian financial markets sharply lower.
The final HSBC PMI stood at 50.4 in April.
The lack of vigor in the world’s second-biggest economy implies its ability to meet the government’s 7.5 percent growth target this year is increasingly difficult, analysts said, albeit it is still possible.
The soft data also sharpens Beijing’s policy dilemma over whether to act to stabilize activity, or tolerate an orderly slowdown while focusing on reducing the country’s dependence on exports and investment for growth, changes that would bring longer-term benefits.
Yao Wei, an economist at Societe Generale in Hong Kong, said the debate favors policy inaction from Beijing for now, as long as economic growth remains above 7 percent.
“We don’t think it will trigger any cyclical policy move as long as the job market is fine,” she said.
“China is really on a path of structural (growth) deceleration. It’s possible (to meet the growth target) but it’s becoming increasingly difficult.”
The PMI survey suggested China is up against weakness both at home and abroad. A sub-index measuring overall new orders dropped to 49.5, the lowest reading since September, suggesting domestic consumption is not strong enough to offset soft global demand.
Asian stock markets extended early losses after the report, with Japan’s Nikkei tumbling more than 7 percent. Oil, copper and rubber prices also retreated on concerns about softer Chinese demand, while the Australian dollar and riskier assets such as emerging Asian currencies skidded.
Thursday’s PMI revived investor worries about whether China can sustain an economic revival this year, after annual growth slumped to a 13-year trough in 2012. China’s factory output and investment performance for April released earlier this month had already underwhelmed markets.
The run of dismal data reports have prompted economists to slash their growth forecasts for China.
UBS this week downgraded its 2013 growth target for China to 7.7 percent, from 8 percent, and Societe Generale is in the midst of lowering its estimates. Bank of America-Merrill Lynch cut its China 2013 growth forecast earlier this month to 7.6 percent from 8 percent.
If the economy meets the government’s growth target and expands 7.5 percent this year, it would still be its worst performance in 23 years.
JOBS ARE KEY
The HSBC flash PMI comes about a week before the final reading and is the earliest indicator of how the Chinese economy is faring each month.
The PMI survey showed new export orders hovered below the 50-point level in May, though the rate of decline slowed from April.
Still, the weak showing implied foreign demand remained lethargic due to a patchy U.S. recovery and Europe’s nagging debt crisis, and echoes weak export momentum seen in Taiwan and South Korea in May.
In a reflection of the cooldown in the vast factory sector, both indices for input and output prices stayed muted in May to be near troughs seen in the third quarter last year.
“A sequential slowdown is likely in the middle of the second quarter, casting downside risks to China’s fragile growth recovery,” said Qu Hongbin, an economist at HSBC.
Yet, barring a slump in the labor market, most analysts believe Beijing will opt to stay on the policy sidelines. Measures such as reducing corporate taxes may be enacted, but only as part of broader tax reforms, not to pump-prime growth.
A stable employment market ranks high among China’s policy priorities as the Communist Party justifies its one-party rule with tacit promises of economic prosperity.
Although Chinese media has reported that a record 7 million graduates will join the labor force this year, there are few reports of widespread discontent among job hunters. Thursday’s PMI also pointed to a stable employment market.
“We believe the government will not loosen monetary policy to stimulate the economy in the second quarter because the labor market is still tight and although headline activity indicators are weaker, they are not collapsing,” Zhiwei Zhang, chief China economist at Nomura, said in a note.
Chinese leaders for their part appear to be comfortable for now with moderating economic growth.
Chinese Premier Li Keqiang said last week the country has limited room to rely on government spending or policy stimulus to spur its growth, dispelling market speculation that Beijing may act to pump-prime its economy.
At the depth of the global financial crisis in 2008/09, an estimated 20 million rural migrant workers lost their jobs, prompting Beijing to unveil a 4 trillion yuan stimulus package to shore up the economy and guarantee employment.
The latest sputter in China’s growth engine is clearly taking a toll on its corporate sector, but there are no signs of major defaults on loans.
Among China-listed companies which have posted their first-quarter earnings, 67 percent missed market expectations, ThomsonReuters data showed.
Zoomlion Heavy Industry Science and Technology Co Ltd (1157.HK)(000157.SZ), China’s second largest construction equipment maker, reported a 72 percent plunge in its first-quarter earnings from a year earlier.
Government data this week also showed that profit growth in China’s giant state firms cooled in the first four months of the year.
Source: Reuters “China factory activity shrinks for first time in seven months: flash PMI”
Russian Military Massenger weekly says in its report on May 21: Over the past decade, Chinese troops have achieved surprising progress. China’s fighter jets can at least be rival to Russian ones in functions and are steadily catching up with American ones.
The weekly says: In mid 1990s, Chinese air force still had several hundred J-5 fighter jets while in the first few years of the 21st century it still used lots of J-6 and regarded J-7 as its new modern weapons. However, over the past decade, Chinese troops have made amazing progress. J-6 was retired three years ago while J-7 has withdrawn to the second line and only 700 to 800 J-7 remain in service. The Chinese now have about 200 J-8s, which being a mediocre type are expected to be kept in warehouses or dismantled in 10 to 15 years.
According to the report, for Chinese air force, its Su-27s purchased from Russia are the symbol of a new era. China bought 76 Su-27SK/UBKs from Russia and then built 105 J-11As by virtue of a license. Since 2007, China has begun mass production of J-11B. At the beginning of this century, China purchased from Russia 76 Su-30MKKs and 25 Su-30MK2s and then began mass production of J-16 in 2012. Now, Chinese air force (including navy air force) has 240 to 300 Su-27s/J-11s and up to 110 S-30s/J-16s. The number will grow rapidly along with the mass production of J-11B and J-16. As a result, in terms of the number of fourth-generation fighter jets, China will certainly surpass the US and Russia within a few years and rank no. one. By that time, its fighter jets will be newer than the US and Russia in shape.
The Russian media points out: In Chinese air force, J-10 is a light fighter, in which the technology of Israel and US fighters has been used for reference and there are also some ingredients of Russian technology. At present there are 150 to 250 J-10s in service and there will be more improved types of them. Tests of J-20 and J-31 have drawn much interest abroad. Judging by their appearances, they are fifth-generation fighter jets: J-20 looks like F-22 and J-31, F-35. However, we all know that China-made engines fail to meet even fourth-generation standards so that there have not yet been clear prospects for J-20 and J-31. Moreover, US experience tells us that development of fifth-generation fighters has reached dead end in terms of functions-price ratio; therefore, it may perhaps be enough for China to strive to obtain a few thousand fourth-generation fighters (a target achievable within 8 to 10 years). By that time, China will top the US and Russia and rank first in number of fighters and be by no means inferior in the quality of its fighters.
Source: mil.huanqiu.com “Russian media says that China will perhaps build several thousand fourth-generation fighter jets topping the US and Russia” (translated from Chinese by Chan Kai Yee)
Reblog of Patrick Boehler’s blog at SCMP
Chinese conservatives have come out to argue against the adoption of “constitutional rule”, a term increasingly used by liberals to demand the realisation of basic human rights guaranteed in the Chinese constitution.
The nationalistic Global Times in an editorial on Wednesday called such demands “empty political slogans” made by “a group of misled intellectuals”.
These intellectuals wanted to “change China’s course of development”, the paper argued.
“If the entire Western world together can’t muster the might [to change China's course], then a small group of domestic dissenters will be even less able to do so.”
Even though the Chinese constitution in theory guarantees freedom of speech, the press and to demonstrate, and the right to elect and be elected, human rights organisations say such rights are consistently cracked down upon.
Many lament that courts cannot invoke the constitution to protect the civil and political rights of citizens. Nobel Peace Prize laureate Liu Xiaobo has attempted to cite rights guaranteed in the constitution in his trial for “inciting subversion of state power” that led to an 11-year prison sentence in 2009.
When the liberal Guangzhou-based newspaper Southern Weekly called for a realisation of a “constitutional dream” in its traditional New Years editorial in January, censors replaced the text with a more muted version, triggering a rare public strike by journalists.
Democracy activists are often seen holding placards with the Chinese characters for “constitutional rule” in photos shared on microblogs.
The editorial in the Global Times, which ranks among the most widely read dailies in China, comes a day after a Beijing law scholar Yang Xiaoqing wrote an article with similar reasoning for the Communist Party’s bi-weekly Red Flag Magazine.
Citing Marx and Engels, the Renmin University professor repudiated what she called the “old Western” understanding of constitutional rule as an oppressive tool of the – in Marxian terms – capitalist stage of development.
Those with capital use the constitution’s allure to trick those who have nothing into believing that they lived in a fair system, she argued in ideologically orthodox terms. Citing Deng Xiaoping and Jiang Zemin, she predicted chaos for China if the country were ever to come under constituional rule.
In contrast to that chaos, Yang offers a vision of a “Chinese contribution to humanity in regards to constitutional rule” in which China’s People’s Congresses under the leadership of the Communist Party are truly representative of the nation’s people and are able to supervise the judiciary.
While a few people supported her comments, they have predominantely been mocked on microblogs, with thousands of people sharing her photo. Lei Yi, a Beijing-based historian, sarcastically wrote in a microblog post that he was reminded of Stalin and Pol Pot.
President Xi Jinping has repeatedly called for more respect of the constitution since he assumed the leadership of the Communist Party in autumn. “No organisation or individual should be put above the constitution and the law,” he reportedly said at a Politburo seminar in February.
Source: SCMP “Conservatives counter demands for constitutional rule in China”
Singtoa Daily says in its comprehensive report titled “Consumption of Luxury goods turned into expenditures for government affairs”, “Since the Central authority issued its eight regulations, measures against extravagance and waist, etc., sales of goods of luxury brands have dropped sharply. In order to adapt to the new ‘characteristics” of the Chinese consumption market, quite a few brands have made adjustments accordingly. Some of their salesmen said that they could provide invoices of work uniforms or office goods for leatherware worth over 10,000 yuan (US$1,600) in order to facilitate disbursement. In that way, they help officials to spend public money for their consumption in disguise.
“Due to the tightening of consumption with public money, there has been sharp decrease in luxury sales. A Xinhua reporter has recently visited quite a few exclusive luxury stores and found significant decrease in the number of shoppers there. After giving preferential discounts for many days in a row, a Givenchy exclusive store on Nanjing Road has closed down recently.”
SCMP says in its report titled “Has luxury peaked in mainland China?”, “According to the consulting company Bain, the market for luxury goods in China grew by 233 per cent between 2007 and last year. This astonishing rate of growth couldn’t last forever, but apart from this natural slowdown, let’s take a look at some of the other factors that may be at work.
“Without a doubt the crackdown by the new leaders on gift-giving is playing a part. The ban on government agencies buying luxury goods came into effect in October of last year and resulted in luxury sales slowing in the December quarter.
“Traditionally, officials often bought luxury goods, such as watches and bags, as ‘gifts’ for other officials or business contacts to help smooth deals and improve relationships. Of course the real effect of this is impossible to gauge, but one client confessed that the policy was having a big effect on sales in her boutiques across China.”
Sources: Singtao Daily: “Consumption of Luxury goods turned into expenditures for government affairs” (excerpts translated from Chinese by Chan Kai Yee” and SCMP “Has luxury peaked in mainland China?”
President visits school, rebuilt after 2008 with Hong Kong aid, that survived last month’s quake
President Xi Jinping yesterday visited areas of Sichuan hit hardest by last month’s magnitude 7 earthquake, meeting survivors and inspecting reconstruction work at a Hong Kong-funded school building.
It was his first visit to Lushan county in Yaan, the epicentre of the April 20 quake that left more than 200 people dead, at least 13,000 injured and millions homeless.
Xi arrived at the Lushan County Stadium at 2.30pm and stayed for more than 10 minutes, showing his concern for survivors sheltering at the biggest resettlement centre in town, which has been home to more than 2,000 people since the quake. Witnesses said he went into temporary dwellings and asked residents if they were well fed.
He then went to Longmen township to meet students and teachers at Longxing Central School, which was rebuilt after the 7.8 earthquake in 2008 with the help of an 8.6 million yuan (HK$10.8 million) donation from the Hong Kong government.
The school suffered no major damage in last month’s quake and remains structurally sound. Officials said no one was injured at the school and pupils had resumed classes in temporary classrooms.
School principal Wang Zhiqiang said the president stayed for about 50 minutes, joining a class meeting and a music class, where he donated schoolbags and stationery for pupils and a piano to the school.
“The president encouraged the students to study hard to repay the concern of society,” Wang said, adding that Xi’s visit was a complete surprise.
Wang Tianling, a teacher at the school, said the fifth-grade children were giving speeches about their ambitions when Xi and other top officials, including Vice-Premier Zhang Gaoli, walked in.
After a boy said spoke of how he wanted to be an architect to design buildings that would survives earthquakes, Xi praised the pupils and encouraged them to study hard to fulfil their dreams.
Xi said he was very worried when he heard about the latest quake until he realised that the casualties were not that serious, the teacher said. He sent Premier Li Keqiang to the same county on the day after the quake
Residents told Xi that supplies of food, water and electricity had mostly returned to normal.
Source: SCMP “Xi Jinping in surprise inspection of Sichuan quake towns”
A boutique carmaker led by former General Motors Co (GM.N) executive Bob Lutz and China’s largest auto parts supplier made an offer this month to buy cash-strapped “green” car company Fisker Automotive, people familiar with the matter said.
VL Automotive and China’s Wanxiang Group are looking to gain control of Fisker through a prepackaged bankruptcy. This comes alongside a separate push by investors in Europe and Hong Kong, including billionaire Richard Li, to buy out the U.S. Department of Energy’s position in Fisker.
Sources cautioned that efforts to revive Fisker are ongoing and may fall apart. They spoke on a condition of anonymity because the talks are private.
Fisker, maker of the $100,000-plus Karma plug-in hybrid, has faced a barrage of negative news this year while it scrambles to find a buyer and preserve cash. Fisker hired bankruptcy advisers and fired most of its workforce this year.
The automaker, which has not built a car since July, is also struggling to repay its federal loan. Last month, Republican lawmakers grilled company co-founders Henrik Fisker and Barny Koehler over the automaker’s finances.
Henrik Fisker left the automaker over “major disagreements” with the company’s executive team in March. Since then he’s been in touch with various investor groups to discuss a potential role for himself in car company should Fisker finds a new owner, sources said.
Fisker, Wanxiang, VL Automotive and the DOE were not immediately available for comment. Henrik Fisker declined to comment through a spokesman.
HALF OFF THE KARMA
Details of the bid from Wanxiang and VL Automotive were not immediately clear, but both companies have an interest in Fisker’s survival.
Wanxiang bought Fisker’s lithium-ion battery supplier, A123 Systems Inc, out of bankruptcy. This week, a judge approved the bankruptcy plan for A123, which changed its name to B456 Systems Inc.
At the Detroit auto show this year, VL Automotive showcased a car called the VL Destino, which combines the shell of a Fisker with the guts of a Chevrolet Corvette ZR1.
The company is a venture between Lutz and his partner, industrialist Gilbert Villarreal. They build the Destino, which will sell for around $180,000, in Auburn Hills, Michigan.
“I want Fisker to live and succeed, if only to ensure a continuing supply of Karma bodies for my and my parter’s (sic) VL Destino, a de-electrified Karma with a Corvette drive train, for which there is brisk demand,” Lutz said in a blog post posted on Forbes.com on April 26.
Any attempt to revive the company faces an uphill battle with future investors, dealers and consumers, said Donn Vickrey, an analyst with research firm Gradient Analytics. In some areas, the Karma prices have fallen by half.
“They’re literally selling at something at 50 cents per dollar right now,” Vickrey said. “That’s a lot of confidence lost. I’m not sure how you get that back.”
He added that it may be “more feasible” to fold Fisker’s operations into another firm, rather than continue to operate the company as a standalone automaker.
BUYING OUT THE DOE
Henrik Fisker founded the company with Barny Koehler in 2007 and together they raised about $1.2 billion in private funds. In 2009, Fisker won a $529 million DOE loan in 2009 as part of a U.S. government program to promote advanced vehicles.
Fisker got $192 million in funds before the DOE froze Fisker’s credit line in mid-2011 after Fisker missed key performance targets. The resulting cash crunch prompted Fisker to overhaul its management team and look for buyers.
The terms of the loan have been a source of friction between the DOE and Fisker. Prospective buyers have been unwilling to assume the obligations spelled out in the loans, sources close to the company have previously said.
Last year, Fisker tried to refinance the federal loans through a bond offering that did not gain traction, according to sources and internal DOE documents released last month during the congressional hearing. In April, the DOE seized $21 million from Fisker’s coffers to repay a portion of the loan.
Investors from Europe are working with Hong Kong businessman Li, who is chairman and chief executive of the Pacific Century Group, to buy out the DOE’s position in Fisker, most likely at a discount, sources said on Tuesday.
This measure would allow Fisker to wrest free of the loan’s current obligations and allow the DOE to recover more than they might get in a bankruptcy. But this route may open the DOE to criticism and raises questions about Fisker’s future strategy.
“That’s not that uncommon in the financial circles,” Vickrey said. “If you can settle that debt at discount and sell the assets to another automaker, it might make sense as an investment.”
Source: Reuters “Exclusive: Bob Lutz, Chinese in bid to buy Fisker Automotive – sources”