Dongfeng steers clear of venture rumours
(China Business Weekly)
Updated: 2004-05-25 08:35

China's No 3 auto maker, Dongfeng Motor, is talking with several foreign car giants about setting up new production ventures, but is denying reports it has agreed to build a large car plant with Renault.

Media reports last week suggested Dongfeng Motor Corp and the French firm had reached agreement to establish a plant, under a 50-50 venture, capable of cranking out 300,000 Renaults annually.

The reports said the plant would be located in Shenzhen, a booming city in South China.

The reports did not provide details about investments and timeframes.

A Dongfeng spokesman denied an agreement had been reached with Renault, but added the Chinese firm had been discussing a variety of ventures with various foreign manufacturers.

Dongfeng manufactures cars with Japan's Nissan, of which Renault owns 44 per cent.

Renault, which said in March it would soon outline a strategy to enter the fast-growing Chinese market, had said it was negotiating with Dongfeng on a venture.

No plans have been announced.

"If we had an agreement for a tie-up ... don't you think we would have announced it as soon as possible?" the spokesman asked.

"We're not sure where the paper got the news, but it's untrue."

China's economy grew 9.7 per cent in the first quarter, driven by torrid investment and credit growth. That triggered fears fixed-asset investments could get out of hand and help turn the nation's boom to bust.

Beijing has vowed to come down hard on rampant over-investment across the country, especially in sectors such as steel, cement, real estate and automobiles.

Fuelling a glut

The venture would also be the latest in a spate of projects to spark worries of a glut as local and foreign firms, from Volkswagen to General Motors Corp, spend billions to expand output to be sold to increasingly wealthy Chinese.

China's car sales rose about 80 per cent last year, to top 2 million units. Sales are expected to maintain a double-digit growth rate this year.

Renault has said it will probably take advantage of its Japanese partner's presence in China.

It already shares parts, platforms and purchasing with Nissan to enhance efficiency and save money, and the two will share a chief executive - industry veteran Carlos Ghosn - next year.

Dongfeng, which plans to raise more than US$1 billion in a Hong Kong share offering, also makes cars with Renault's rival, PSA Peugeot Citroen, and Japan's Honda.

Its Nissan venture has said it aims to quadruple sales of trucks and cars in China by 2007, giving it a 3-per-cent share of the passenger car market, and raise its operating margin to 10 per cent from 8 per cent.

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