Two Chinese state-owned automakers, Dongfeng Motor Group and Chongqing Changan Automobile Company, are understood to be considering a merger to form a stronger company able to compete more effectively on the global stage with rival Chinese automakers such as BYD and Geely, as well as with leading overseas automakers such as Toyota, VW Group and Hyundai-Kia.

The listed companies, in filings to their respective stock exchanges over the weekend, stated that their controlling shareholders were “considering asset deals that might lead to changes in their ownership structure”.  Both companies emphasized that any plans would be subject to approval from the relevant authorities.

While this was not a clear-cut merger announcement, with the two companies not explicitly naming each other in their plans, market traders took the statement as such – resulting in Dongfeng’s share price jumping by 29% on Monday in Hong Kong while Changan Automobile’s shares surged by 8% on the Shenzhen Stock Exchange.

One broker told reporters: “The announcements apparently point to a potential merger of their state-owned parent companies, though they did not give a clear-cut word on it.  The Chinese government has reasons to encourage consolidation of the automotive sector as cut-throat competition has ensnared most of the players.”

A merger of Dongfeng and Changan, similar to that proposed by Honda and Nissan, would create a Chinese automaker with more than five million vehicle sales, based on 2024 data. The two companies have numerous vehicle and component manufacturing plants across China, with significant potential to cut costs through production and supply chain integration and shared R&D expenditures.

Morgan Stanley said in a research note: “The restructuring, if it materialises, would be a big step towards industry consolidation and of great importance to China’s auto industry in the long term.”