Renault seals US$1.3b deal with Dongfeng

Joint venture opens the mainland market to French carmaker's locally assembled models

PUBLISHED : Tuesday, 17 December, 2013, 3:55am
UPDATED : Monday, 20 January, 2014, 3:04pm

Renault has gained full access to the mainland's car market yesterday by signing a joint venture agreement with state-owned Dongfeng Motor Group in Wuhan, a city fast shaping up as China's own Detroit.

Nine years after the two companies first announced plans for the joint venture, they finally signed a US$1.3 billion 50-50 partnership to introduce the French carmaker's own locally assembled models in the world's biggest car market.

The deal allows Renault to fully tap demand in China, something it has been unable to do until now because of the lack of a strong local partner. China's central government requires all foreign carmakers to have a local partner to be allowed to produce cars in the country.

To build a Chinese presence, Renault has been forced to rely on imports from South Korea. Now with Dongfeng, it will invest 7.76 billion yuan (HK$9.84 billion) to build a factory in the central city of Wuhan, with the first car due to roll off the production line in 2016.

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Renault, which has an alliance with Japan's Nissan Motor with whom it shares technology, plans to make 150,000 cars a year in Wuhan and set up a jointly run network of retail stores.

The carmaker's investment is a boon to Wuhan. The city, with a population of 17 million including its surrounding suburbs, is home to Dongfeng, China's second-biggest carmaker.

The Wuhan government is aiming to transform into a major vehicle manufacturing and logistics hub on the mainland by attracting global carmakers and their Chinese partners to open shop, which some say has clogged the air with dust due to all the construction activity.

Thanks to its central position and its rail, road and waterway networks it is better-positioned than other cities to become China's Detroit - minus the bankruptcy, said Peng Zhimin, a regional economics researcher at the Hubei office of Chinese Academy of Social Sciences who advises the provincial government.

Peng sees Wuhan as a combination of Detroit, home of the US car industry, and Chicago, North America's transport hub.

"Wuhan has a reputation of being the Oriental Chicago. The city's developed transport and logistics systems give it an advantage," Peng said.

In addition to Renault, Wuhan is also home to Dongfeng's joint ventures with Nissan, Honda Motor and PSA Peugeot Citroen. Honda, Dongfeng and Peugeot also assemble cars in or around Wuhan.

The city, which can make about one million vehicles a year, is aiming to boost that to three million by 2016. Much of that planned capacity boost will come from Renault's joint venture with Dongfeng and other global carmakers such as Peugeot, which is close to getting a sizeable capital injection from Dongfeng.