Dongfeng, Renault to form JV: report

French carmaker Renault SA is planning to form a joint venture (JV) with Dongfeng Motor Group Co, China's second largest car producer by sales, media reports said Monday.

Zhou Mi, a spokesperson at Dongfeng Motor, did not confirm the news, but told the Global Times Monday that "the two companies have been communicating with each other on the matter."

Shanghai-based China Business News reported Monday that the plant will be located in Wuhan, capital of Central China's Hubei Province, and the two companies will invest a total of 6.5 billion yuan ($1.04 billion) in the new plant.

The plant would initially produce a Renault SUV model called Koleos, and is expected to have an initial capacity of 200,000 cars a year, according to the report.

The timing for Renault's localization is not as good as it would have been 10 years ago when the Chinese automobile industry had just started booming, said Zhang Yu, managing director at Shanghai-based consultancy Automotive Foresight.

"But the market for SUVs in China is growing rapidly at present, so at least for SUVs, a localization strategy is not so late," Zhang told the Global Times Monday.

On November 18, another domestic automaker, Chery, announced the groundbreaking on its 12 billion yuan joint venture with British carmaker Jaguar Land Rover. About 60 percent of the venture's capacity will be used to make Land Rover SUVs.

Renault produced cars in China in the 1990s through a joint venture with Hubei-based China Sanjiang Space Group. A China Business News report cited Chen Guozhang, chief executive of Renault China, as saying that Renault would not need to seek a new production license from the government, as it would use the one from its previous joint venture.

Dongfeng Motor currently has car ventures with Nissan Motor, Honda Motor and PSA Peugeot. Experts say it is no surprise for Renault to choose Dongfeng as its Chinese partner, since Renault and Nissan had formed an alliance as early as 1999.

Dongfeng is also motivated to cooperate with Renault, as Nissan sales have been dampened since September's escalation of the Diaoyu Islands dispute between China and Japan, Zeng Zhiling, director of LMC Automotive Asia Pacific Forecasting in Shanghai, told the Global Times Monday.

Dongfeng Motor operates three self-owned brands currently, but Zeng noted that JVs are the main force driving its sales growth at present.

"Renault's sales in China are very small compared with its competitors, and localized production may help to enlarge that figure," he said.

Compared with other European automakers such as Volks­wagen, which sold nearly 2 million cars in China through its joint ventures last year, French cars still do not have a strong foothold in China. Renault only sold 24,275 vehicles in China in 2011. In the first 10 months of the year, French automakers collectively sold 355,200 passenger vehicles in China.