Behind the Rushed IPOs of Domestic Tire Companies

Jiangsu General Science and Technology Co., Ltd. went public in Shanghai securities exchange on Sep. 19.

It was the third domestic tire producer going public in this year.

Linglong Tire and Triangle Tire launched IPOs in Shanghai securities exchange, respectively, on Jul. 6 and Sep. 9. Both the companies were from China’s largest tire producer Shandong province.

Three tire companies going public within so short period of time attracted people’s attention to the domestic tire industry.

Stable Industrial Development

Statistics show that over the past five years, the overall output and income of the tire industry grew slower.

But it didn’t change the fact that the entire tire industry is developing stably.

Figures released by China Association of Automobile Manufacturers and China Rubber Industry Association show that during the 2001-2015 period, the annual compound growths of China’s output and sales of automobiles reached 18.37% and 18.23%, respectively, and the compound growth of tire output was 14.55% annually.

Moreover, as the development of global automobile industry kept stable, China’s tire exports increased year by year and took up around 50% of its total output.

Swift development of China’s tire export market is in close relation to stable development of Chinese economy and automobile industry.

As domestic market demand kept rising and global tire industry transferring to China, the scale of China’s tire production expanded quickly, making it a world’s leading tire producer.

As of 2015, China’s tire output reached 565 million, ranking the first around the world.

At the same time, among the world’s top 75 tire companies, there were 34 from China.

Among the tire companies going public this year, Triangle Tire ranked the 15th, Linglong ranked the 20th, and they were among the top three tire producers in China.

A Sudden Change

However, the situation changed suddenly.

People found that since 2014, China’s tire companies began to suffer.

One of the key reasons was the industry’s windfall profit dwindled sharply.

Sales income of the tire companies – which growths once exceeded 60% annually a few years ago – dropped across the board.

Adjustment in domestic macroeconomy and ordinary development of automobile industry considerably affected the tire industry.

When most companies readjusted their expectations and accepted the new normal, they found that the once lucrative tire export market encountered obstacles.

Leading by the U.S., an increasing number of countries joined in the group launching anti-dumping and anti-subsidy tariff against tires from China. Beaten by the investigations round and round, both export volume and price of China’s tires have plunged.

Although more Chinese companies entered the world’s top 75 tire companies, people have to admit that their competence are not strong enough, but competing by “price war”.

The combined sales income of China’s top three tire producers only equals to that of the world’s fifth largest tire producer.

Blind investment and local protection resulted in increasing serious overcapacity, in particularly the low-end capacity.

Contrasting to the massive number of excess capacity of China’s tire companies, there are only a few competitive Chinese tire brands. When the performance and quality of China’s tire products are equal to foreign products, the prices are much lower.

An industry insider said, under such circumstances, rushed IPOs of leading Chinese tire companies helped them raise funds for market expansion and accelerated the integration between financial capital and industrial capital.

It offers significant foundation and prerequisites for Chinese tire companies going global with their brands.