Renault-Dongfeng JV approved by China regulator

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HONG KONG -- Renault said China's top economic planner has approved a joint venture between the automaker and Dongfeng Motor Group to build and sell cars in China.

The green light activates long-standing plans by the French carmaker to introduce its own locally assembled models in China, building on the presence of alliance partner Nissan and its existing venture with Dongfeng.

The new venture will build 150,000 vehicles a year. The partners will also produce engines and will consider manufacturing key engine components.

Renault did not disclose which vehicles it will build in China or when production will start. The venture will help the company to strengthen its scale in the Chinese market, Renault said in a statement today.

The approval from China's National Development and Reform Commission comes more than nine years after Renault and Dongfeng first announced plans for a joint venture. Renault had previously expected approval by the end of 2012.

According to a Chinese media report in July, the joint venture plans to begin producing SUVs and minivans in 2014. The 50-50 venture will be known as Dongfeng Renault Automotive. It will have total investment of 7.76 billion yuan ($1.3 billion).

Approval was given by the National Development and Reform Commission, both automakers said.

Renault sells about 50 percent of its vehicles in Europe and intends to reduce its reliance on the region, where car demand is at a two-decade low. A total of 19.3 million vehicles were sold in China in 2012, against about 14.4 billion in Europe.

Late to market

The carmaker's entry into China trails competitors such as Volkswagen Group by decades. Local production is key for competing in China because imported cars are hit with a 25 percent tariff.

Renault has sold fewer than 30,000 cars this year in China, a stark difference from its Japanese partner, Nissan, which delivered more than 1 million vehicles in the country, ranking third among global carmakers.

To build a Chinese presence for the Renault brand, the automaker has been forced so far to rely on imports from the Renault Samsung Motors division in South Korea, led by its Koleos SUV.

Nissan, 43.4 percent-owned by Renault, has become Dongfeng's most lucrative partner in the decade since their venture was created, with explicit provisions for its eventual extension to Renault. Joint production came to 1.25 million vehicles last year and accounted for 59 percent of the Chinese carmaker's first-half net profit, according to Citi analysts.

PSA-Dongfeng alliance

The new venture is good news for Renault's growth prospects but could complicate efforts by ailing French rival PSA/Peugeot-Citroen to expand its own partnership with Dongfeng.

"We struggle to see how a tighter relationship with Renault will help Peugeot in its negotiations for a deeper alliance," Barclays analyst Kristina Church said.

PSA already operates a joint venture with Dongfeng in China and is discussing plans for Dongfeng to take a stake in PSA.

A PSA spokesman would not comment on the Renault and Dongfeng agreement, saying only that any recent developments in China have not affected PSA's successful joint venture with Dongfeng. PSA's negotiations with potential alliance partners in China remain "on track," the spokesman said.

Bruce Gain, Reuters and Bloomberg contributed to this report

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