China's state-owned auto sector is entering a new phase of consolidation. On September 14, GAC Group (601238.SH) suspended trading in its A-shares for the day, and its Hong Kong-listed shares (02238.HK) were also halted after a sharp early gain. The moves came after two days of market speculation about a tie-up between GAC and FAW Group, according to a report by the Economic Observer, which was republished by HUXIU.
That evening, GAC announced it had signed a letter of intent with FAW Corporation to acquire a stake in a joint-venture vehicle company owned by FAW, paying with newly issued GAC shares. GAC did not name the target, citing the involvement of an overseas-listed company. Market speculation points to FAW Toyota, the joint venture between FAW and Toyota Motor.
Under the proposed structure, FAW would become GAC's second-largest shareholder with strategic influence, while GAC's actual controller would remain unchanged. The two groups would continue to operate independently. This is not a full merger but a 'light restructuring' at the listed-company level, the report said.
A share swap instead of cash
The deal is notable for using equity rather than cash. GAC will issue new A-shares to FAW in exchange for part of a vehicle joint venture, avoiding a cash outlay. FAW, in turn, converts an unlisted core asset into liquid GAC stock. One source close to GAC told the Economic Observer that GAC may acquire about 25% of the target company, and after valuation adjustments, FAW could end up holding roughly 30% of GAC.
The transaction reflects FAW's long-standing struggle to list its most valuable assets. Since its founding in 2011, FAW Corporation has held the group's vehicle business, including FAW-Volkswagen and FAW Toyota, but those joint ventures have never been able to complete an IPO. By swapping them for GAC shares, FAW gains an indirect path to capital markets and a share of GAC's future profits and market value.
Both sides face pressure. GAC's sales fell from 2.5 million vehicles in 2023 to 1.72 million in 2025, and the company reported a net loss of 8.784 billion yuan (about $1.24 billion) in 2025. In the first half of 2026, its net loss widened to 4.467 billion yuan (about $629 million), up 75.98% year on year. FAW has seen its production and sales decline, and a June document from Changchun's industry bureau warned that FAW could face strategic restructuring pressure.
North and South Toyota may converge
Many industry insiders believe the deal could pave the way for a merger of FAW Toyota and GAC Toyota, the two Toyota joint ventures in China. In the first half of 2026, GAC Toyota sold 341,100 vehicles, while FAW Toyota sold 273,700, a drop of 27.4% year on year. A combined operation could create a unified platform with annual production of 1.2 to 1.3 million vehicles, according to a Citi research note, potentially saving 2 to 3 percentage points on sales costs and 1 to 2 percentage points on selling and administrative expenses.
However, the restructuring is about more than Toyota. GAC's announcement said the acquisition aims to 'promote the optimization and integration of industrial resources between local state-owned and central state-owned enterprises and improve the operating efficiency of listed companies.' The two groups see synergies in geography, distribution, and technology. FAW is strong in the north, while GAC dominates the south. FAW's scale and capital could combine with GAC's expertise in electric platforms, battery systems, and intelligent driving.
FAW also stands to benefit in the government's new-energy vehicle (NEV) assessment. GAC Aion's annual sales of nearly 300,000 units could be partially counted toward FAW's totals, helping it meet central enterprise NEV targets. FAW already took a 5% stake in Leapmotor in December 2025 for 3.744 billion yuan (about $527 million), which added about 32,000 units to its sales tally.
Yet execution challenges remain. FAW is a central state-owned enterprise, while GAC is controlled by the Guangzhou municipal government. Their assessment systems, decision-making processes, and corporate cultures differ significantly. As one analyst put it, 'Merging is easy, but coordination is hard. Profit distribution is the core issue.' The deal, if completed, would be a test of whether China's state-owned auto giants can truly integrate beyond paper agreements.
