Brilliance Auto defaulted on ¥6.5B of bonds — the BMW cash cow wasn't enough

Brilliance Auto Group was founded in 1992 as a state-owned enterprise under the Liaoning provincial government. It grew into one of China's largest automakers through a joint venture with BMW, established in 2003, that produced BMWs for the Chinese market. The JV, BMW Brilliance, was enormously profitable. Brilliance's own brands — Brilliance, Jinbei, and Zhonghua — were not: they sold poorly, were known for mediocre quality, and lost money every year.

By 2019, the pattern was impossible to miss. Brilliance Auto reported a net profit of ¥7.63 billion — but without BMW Brilliance's contribution, it would have lost ¥1.33 billion. In the first half of 2020, the gap widened further: net profit of ¥4.05 billion, BMW JV contribution of ¥4.34 billion. Without BMW, Brilliance was a loss-making shell. The company had taken on enormous debt to fund its own brands, and its debt ratio was dangerously high.

In late August 2020, credit rating agencies began putting Brilliance's corporate bonds on a watch list. By late October, the rating had fallen from AAA to A+. In November 2020, Brilliance's parent company — Brilliance Automotive Group Holdings Co., Ltd. — defaulted on corporate bonds worth more than ¥6.5 billion (US$1 billion) and entered bankruptcy restructuring. The Shanghai Stock Exchange later publicly condemned the company and its chairman for information disclosure violations.

The bankruptcy did not affect Brilliance's Hong Kong-listed subsidiary or the BMW joint venture. But the restructuring was a stark verdict on a state-owned enterprise that had survived for years on a single JV's profits while its own products failed. In 2018, BMW had already announced it would take majority control of the JV, reducing Brilliance's share to 25%. Brilliance went from a pillar of Liaoning's industrial policy to a bankruptcy case — unable to build a car people wanted to buy, even with a BMW cash cow.