Peugeot Citroen, partner to build factory in Chengdu

Plant expected to help boost company's profile in western China

French carmaker PSA Peugeot Citroen and its Chinese partner Dongfeng Motor Group have received an official green light to build a new factory in the world's top car market, a move which analysts said Thursday indicate the growing importance of the China market for the struggling French carmaker.

Dongfeng Peugeot Citroen Automobile Co (DPCA), the joint venture of PSA Peugeot Citroen and Dongfeng Motor Group, announced Wednesday it will build its fourth factory in China in Chengdu.

DPCA signed the investment agreement to launch the plant with the local authorities in Chengdu, Southwest China's Sichuan Province, according to a news release on DPCA's website.

The new plant will mainly produce sports utility vehicles and multi-purpose vehicles under the Dongfeng, Dongfeng-Citroen and Dongfeng-Peugeot brands, with annual production of 300,000 vehicles.

Together with three other existing factories in Wuhan, Central China's Hubei Province, DPCA's annual production capacity will increase to 1 million vehicles, PSA said on its website Wednesday.

The construction of the new plant will start in the second half of this year and the first car is scheduled to roll off the new assembly lines in late 2016, according to PSA.

"DPCA was founded many years ago and it has not performed well in the Chinese market until recent years," Zhang Yi, an auto industry analyst, told the Global Times on Thursday.

PSA has put more efforts into the Chinese market than before by introducing more new models and a new engine which was jointly developed with BMW, according to Zhang.

Jia Xinguang, managing director of the China Automobile Dealers Association, echoed Zhang. He said on Thursday PSA used to solely rely on European markets and suffered from a difficult situation due to the European market recession.

Now it has started turning to emerging markets such as China, according to Jia.

PSA sold 557,000 vehicles in China in 2013 and expects to sell at least 700,000 vehicles this year through DPCA and a second joint venture with Changan Automobile Group, Reuters reported Wednesday.

However, there is also a potential risk of overcapacity in the Chinese auto industry, Zhang noted.

More than 22 million vehicles were produced in China in 2013, and there will not be endless growth, he said.

It is hard to predict the market need in 2016 when the new plant will significantly boost DPCA's production capacity, he noted.

The restriction on car purchases in the first-tier cities has also reduced consumption power, he said, noting it is one of the reasons that automakers are now turning to western China and second- or third-tier cities.

Qiu Xiandong, general manager of DPCA, was quoted in the news release as saying that Chengdu is the main city in western China and a plant in Chengdu will further help DPCA's development in the region.

Among the provinces in western China, Sichuan Province provides cheap labor and support from the local government, Zhang said.

Moreover, Chengdu has a high vehicle ownership, lower than only several big cites in East China and South China, he said, noting Chengdu has a strong purchase power in terms of cars.

A group of automakers have already set up plants or offices in Sichuan Province, including Volkswagen, Toyota, Volvo and Geely, local newspaper Sichuan Daily reported Thursday.

Currently, there are more than 400 auto industry companies in Sichuan, the report said.

With DPCA's new plant, the annual production capacity in Chengdu is expected to surpass a million vehicles in 2017, the report said.