Tire companies prefer wealth management to R&D investment?

Over the past year, three out of six tire companies listed in the Chinese mainland bought wealth management products.

One senior figure of the tire industry said that the industry was beset with internal and external troubles and the manufacturers shouldn’t have buy too many wealth management products at such a time, but to invest in development of high-tech high-end products.

Heavier pressure on business revenue

Qingdao Doublestar announced on Jan. 19 to buy a capital-protective wealth management product of Haitong Innovation Securities Investment Co., Ltd. for 100 million yuan with its own capital.

One month before that, Double Coin Holdings said it would invest a part of its fundraising in a cash management program.

Last March, the board of Sailun Jinyu passed a proposal to use its own capital of no more than one billion yuan and invest in secure, capital-protective, stable mid- and short-term wealth management products or fixed-income securities.

The usual explanation given by the listed firms for buying wealth management products is to enhance the effectiveness of fund using and increase the income.

An industry insider said the explanation is reasonable, particularly for Chinese tire companies suffering thinner profits.

Poor investment in R&D

Sluggish domestic tire industry, limited room for main business growth, difficulty in gaining operational profits are the primary causes for tire companies running irrelevant business, said a senior figure.

Analytically, Chinese tire companies’ difficulty in gaining operational profits is due to the lack of high-end products.

Most domestic tire companies focus only on present market benefits and are unwilling to put their capital in R&D, thereby their products are restrained in the low-end market without development potential.

Statistics show that the R&D investment of the world’s top two tire companies, Bridgestone and Michelin, account for around 3% of their sales income, and their annual expenses in R&D are over one billion U.S. dollars and 800 million dollars, respectively.

Shandong province is China’s largest tire producer. But only a few leading tire companies in the province have their R&D expense as a percentage of the sales revenue reaching 2% to 3%, and the actual amount of investment is far less than those of the world’s leading tire firms.

According to the annual reports of Qingdao Doublestar, Sailun Jinyu, and Double Coin, their R&D expenses in 2014 were 108 million yuan, 226 million yuan, and 318 million yuan, respectively, and accounted for 2.69%, 2.03%, and 2.15% of their sales revenues.

He Xiaomei, chief engineer of Beijing Research and Design Institute of Rubber Industry, said technological investment is the foundation for the development of enterprises. Currently, the tire market is sluggish with oversupply, tire manufacturers should enhance their scientific and technological investment and devote in product development, or they will be lagged behind forever.