Foreign competition leads to new partnerships in China

Yang Jian is managing editor of Automotive News China.Yang Jian is managing editor of Automotive News China.
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SHANGHAI -- In China's auto industry it is common to see joint ventures between global brands and state-owned Chinese companies.

But now a new type of partnership -- between big state-owned automakers and small private domestic companies -- is emerging.

This is occurring because the Chinese companies are feeling the heat of competition with major foreign automakers.

Guangzhou Automobile Group Co., a major state-owned automaker, is leading the trend.

Guangzhou Auto first formed a 49-51 percent joint venture with the founder of Gonow Auto Co., a small private manufacturer of SUVs and microvans.

Then Guangzhou Auto signed a deal last month with ZX Auto Co., a small private SUV and pickup manufacturer. The partners will build an assembly plant in the central China city of Yichang.

All foreign automakers producing vehicles in China must form joint ventures with state-owned Chinese automakers.

But Guangzhou Auto's partnerships with ZX Auto and Gonow are different. First, these deals arose to satisfy the partners' mutual needs.

Guangzhou Auto is cash-rich, thanks to the profits generated by its joint ventures with Honda Motor Co. and Toyota Motor Corp. However, the company has been urged by the central government to build its own vehicles.

Meanwhile, Gonow and ZX were short of capital to expand production and upgrade products. They could hardly survive on their own amid increasing competition.

Moreover, the partnerships look like a pretty good deal for Gonow and ZX. Under the two deals, the founders of those two companies control their joint ventures with Guangzhou Auto.

At a time when foreign automakers are moving aggressively into China's entry-level market, other small domestic automakers will forge alliances with big state-owned companies.

And it's likely these companies will seek deals with Guangzhou Auto, Dongfeng Motor Corp. or Beijing Automotive Industry Group Co.

These three state-owned behemoths have not made much progress building their own brands, despite the government's directives.

It's too early to tell whether these new joint ventures will prosper.

But one thing is certain: it will buy some time for the private automakers to fight for survival in a market dominated by global giants.

You can reach Yang Jian at yangjian@autonewschina.com.

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