SAIC Motor, China’s largest state-owned carmaker and the Chinese partner of General Motors, has established a private equity fund to finance its forays into developing smart cars with the country’s biggest technology company Alibaba Group Holding . SAIC Motor would invest 5.4 billion yuan to create the 7.2 billion yuan (US$1 billion) fund with Shanghai Zhangjiang Hi-tech Park Development, according to an exchange filing. Hengxu Capital, a fund of funds platform under the carmaker’s SAIC Capital unit, will separately contribute less than 0.1 per cent of the fund’s capital, used in a collaboration with Alibaba (China) Network Technology to invest in smart electric vehicle technologies. “SAIC’s investment plan and its collaboration with Alibaba add evidence to China’s ambition of taking the global lead in the development of smart vehicles,” said Gao Shen, a Shanghai-based independent analyst on the manufacturing industry. “A marriage between conventional carmakers and technology behemoth will prove to be effective.” With the world’s largest market for automobiles since 2009 , China is aiming to have more electric vehicles on the nation’s roads than anywhere else, and has poured tens of billions of yuan in subsidies, incentives and tax breaks into nurturing the development of vehicles powered by alternative fuels . Smart cars, or vehicles that use high-speed internet connectivity for navigation, in-car information and entertainment, also form a technological goal sought by policymakers. Hundreds of technology companies from the biggest giants like this newspaper’s owner Alibaba Group Holding and the dominant internet search engine Baidu to start-ups are engaged in developing applications and hardware for the next generation of vehicles and redefine mobility . Electric vehicle makes like LiAuto, Nio and Xpeng Motors are racing to churn out models that can challenge Tesla’s Model 3 sedan, the current market leader in the premium segment of China’s new-energy vehicle market. Smart technology is one area that Chinese companies can capitalise on to surpass Tesla, as local engineers and developers understand traffic conditions and drivers’ habits better than the US rival, according to Xpeng’s president Brian Gu. Alibaba began working with SAIC to develop internet-connected cars in 2016. Some of SAIC’s Roewe sports-utility vehicles run on Alibaba’s smart technology YunOS, featuring intelligent digital map, voice control, action cameras and internet ID. Based in Alibaba’s hometown of Hangzhou in Zhejiang province, Alibaba (China) Network’s main business is the research and sale of computer network software and related consultancy services, according to Chinese private equity data provider PEdaily. SAIC surged 8.5 per cent to 27.08 yuan on the Shanghai Stock Exchange, while Zhangjiang jumped by the 10 per cent daily limit to 19.36 yuan. “The investment will expedite the self-innovation capability and transformation of the auto industry, relying upon the competitiveness of the respective partners in this fund in the areas of artificial intelligence; autonomous driving, chips and new energy vehicle,” SAIC Motor said. SAIC Motor’s brand competitiveness will also be enhanced, it said in the exchange filing, as the automaker’s own technological upgrade will also be advanced through the building of an ecosystem for new energy car, and intelligent connected vehicles. China is focusing on the development of internet connected cars as it holds the prospects for a “new era” for cars. The country is expected to be home to a 100 billion yuan market for intelligent connected vehicles by 2020, Industry and Information Technology Minister Miao Wei told an industry conference in October 2018.