DONGFENG MOTOR JOINT VENTURE

China’s Dongfeng Motor - AviChina JV likely

9 March, 2008

BY OUR AUTOMOBILE CORRESPONDENT

In what could be a step toward consolidation of China's colossal auto industry, its leading automobile company Dongfeng Motor Corp is forming a joint venture firm. The company which is one among the three largest automobile groups in the country, aims to step up its passenger car business through the JV.

A report said that Shanghai-listed Harbin Dongan Auto Engine Co’s parent company AviChina Industry and Technology Co Ltd is in talks with Dongfeng Motor for a possible tie-up. AviChina and Dongfeng will form a joint venture and AviChina will finance the venture with restricted circulating shares of Dongan Engine and parts of assets from its subsidiary minivan manufacturer Harbin Hafei Automobile Industry Group.

The two companies are said to be in talks. Once a deal is struck, it is expected to be a landmark deal after the amalgamation of Shanghai Automotive Industry Corp and Nanjing Automobile Group Corp in 2007, analysts said.

After the joint venture is formed, it is likely that Harbin might become another engine manufacturing base of Wuhan-based Dongfeng Motor. This would in turn help Dongfeng to expand the market for its own cars. It is believed that state-owned AviChina wants to spin off its non-core assets to focus on aircraft manufacturing, while Dongfeng Motor, which specialises in passenger vehicles and medium-to-heavy duty trucks, faces tough competition from China FAW Group Corp and Shanghai Automotive Industry Corp, the other two of China's top three automakers.

Analysts pointed out that a merger with Hafei and AviChina's Dongan Engine, which sold 300,000 engines in 2007 could be seen as the best and the fastest way to realize its dream of making independent cars.

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