Something is cooking at the Shanghai Automobile Industry Corp (SAIC), the government-backed group which runs the most profitable joint venture in China. First, it played white knight to two unprofitable listed companies, which are in businesses unrelated to its own. Then, news emerged it was finalising talks to take over 20 per cent of Shanghai Dazhong Taxi, a well-run taxi-leasing listed company, from a government bureau. Finally, during US Vice-President Al Gore's visit to China last week, it completed details for a US$1.57 billion joint venture with General Motors to make Buick cars. Why all these corporate manoeuvres? It is no secret the municipal government is giving SAIC all the backing it needs to help it leap-frog into the league of the world's top 500 companies by 2000. The apparent strategy is to turn SAIC into a diversified conglomerate while retaining car production as its core business - a prudent ambition in view of China's application to join the World Trade Organisation. While Shanghai Volkswagen, its money-churning car venture with Germany's Volkswagen group, has dominated the mainland car market with its Santana sedans, it faces increasingly stiff competition from other domestic manufacturers. The competition will escalate when China joins the WTO within the next year or two, which will require Beijing to further cut tariff and non-tariff barriers for imports, including cars. With less than two years to play with, SAIC is seeking to consolidate its leadership by joining GM to set up China's biggest car joint venture. Whether it will turn out to be a cash cow such as Shanghai Volkswagen is too early to tell. At any rate, with two big car facilities within its fold, SAIC's leadership position will be hard to challenge. China would dearly love a domestic car producer capable of competing with foreign producers at home and abroad. Still, it remains commercially imprudent to rely solely on one source, car sales, for income. So, it recently sought to diversify by taking over as controlling shareholder two manufacturers, Shanghai Video & Audio Electric and Shanghai Vacuum Electronic Devices. One makes colour television sets, the other TV parts; both are in the red. It was puzzling why SAIC was keen to take them over, since it meant injecting money and management expertise into them. Was SAIC asked to bail out the two to ward off unwanted attention from Sichuan Changhong, China's biggest and most profitable colour TV producer? Changhong was said to be eyeing Shanghai Video and Shanghai Vacuum with the aim of expanding its position in Shanghai. That reportedly got the Shanghai government worried that other Shanghai brands could be gobbled up. There is talk the local government asked SAIC to step in because it did not want Shanghai Video and Shanghai Vacuum to be controlled by a successful domestic producer from another province. Shanghai was the leader in home appliance production in the 80s, but gradually lost that position to areas with more nimble domestic producers. SAIC may have done well in car production, but can it repeat the success in colour TV production? Its plan to acquire 20 per cent of Shanghai Dazhong Taxi makes more sense. Dazhong buys its taxi fleet from SAIC's Volkswagen joint venture and needs money to upgrade the fleet. The SAIC-Dazhong alliance will result in cost savings for the taxi operator, while the car producer will be able to diversify its income. It seems to be a 'win-win' alliance. SAIC needs more such tie-ups and fewer politically directed deals to realise its ambition of playing in the global big league.