Peugeot, Changan to sign China JV deal

French car maker PSA Peugeot Citroen will finalise a deal Friday to set up a 50-50 manufacturing venture with China Changan Automotive Group, a source said, as it moves to ramp up capacity in the world's largest auto market.

The Peugeot-Changan tie-up marks the latest foreign auto expansion in a market where General Motors, Volkswagen AG and others, are competing for dominance.

Under the agreement, PSA Peugeot will team up with Harbin Hafei Automobile Industry Group, a subsidiary of Changan, to make light commercial vehicles and cars in south China, the source close to the Chinese company told Reuters.

"Changan and PSA will use Hafei's existing facilities in Shenzhen. PSA's DS series models are included in the portfolio," said the source.

PSA Peugeot declined to comment and executives at Changan could not be reached immediately.

"It's a good move for PSA Peugeot as a new venture could expand its product line and hopefully help it win more market share here," said Zhang Xin, an analyst with Guotai Junan Securities.

A Peugeot tie is equally beneficial for Changan, the state parent of Chongqing Changan Automobile Co, which currently operates a car venture with Ford Motor, other analysts said.

China, which eclipsed the United States as the world's top auto market last year, has been a major bright spot amid a global industry downturn and a safe heaven for foreign auto giants.

PSA Peugeot is already making Peugeot 408 and C5 sedans in partnership with Dongfeng Motor Group Co, but it lags most of its foreign rivals due in part to a limited portfolio.

The venture sold merely 175,190 cars in the first half, equivalent to a third of Hyundai Motor and Kia Motors combined tally and merely 15 per cent of what GM had sold in the country during the period.

The French automaker, however, has been actively seeking to expand its footprint in the country.

Sources told Reuters in May that PSA Peugeot and Dongfeng, with a combined annual auto production capacity of 450,000 units, aims to build their third plant by the end of this year.

The greenfield facility, with annual capacity of between 150,000 to 200,000 units, is scheduled to be up and running by 2012.

Other foreign auto makers also also expanding.

GM, which already makes cars and light commercial vehicles with China's major auto groups SAIC Motor Corp and FAW Group, is now selecting a site for a greenfield China plant, executives had said.

Volkswagen also pledged earlier this year to add an additional €1.6bn ($2.03bn) to its previously announced €4.4bn China investment scheme.