China's Guangzhou Automobile Group told China Daily yesterday that it has agreed with South Korea's Hyundai Motors to set up a joint venture to produce buses and trucks.

"We have signed an agreement of intent to form a joint venture," said an official, surnamed Tang, from Guangzhou Automobile.

Hyundai said yesterday that its total investment in the planned US$430-million joint venture will reach US$1.2 billion by 2011.

The venture, to be located in Guangzhou, the capital of Guangdong Province, will start operations in 2007 with an annual output of 20,000 vehicles.

Its output will rise to 50,000 units a year by 2009 and 200,000 by 2011.

By teaming up with Guangzhou Automobile, Hyundai will have six Chinese partners to produce vehicles.

The South Korean automaker and Beijing Automotive Industry Holding Corp run a car joint venture with an annual production capacity of 300,000 units.

Hyundai's affiliate Kia Motors has a car joint venture in Jiangsu Province with Dongfeng Motor and Yueda Group.

Hyundai is building a US$780-million joint venture in Anhui Province with Jianghuai Automobile Corp. The venture will make 90,000 trucks and 10,000 buses by 2010.

The South Korean group also has a technically licensed partner, Huatai Automobile, which is assembling Hyundai brand sport utility vehicles (SUVs) in Shandong Province.

Zhang Xin, an auto analyst with Guotai & Jun'an Securities Co, said: "The new venture in Guangzhou is Hyundai's fresh deployment to expand in China which will be critical to achieve its global goal."

Hyundai Motor (China) Investment Co Ltd said in April that the South Korean group aims to produce more than one million cars in China and control one-fifth of the nation's car market by 2010.

Last year, Hyundai sold some 230,000 cars in China, controlling 9 per cent of the car market.

Globally, Hyundai aims to be one of the top five automakers by 2010.

"The new venture in Guangzhou will mainly produce buses as Guangzhou Automobile have some know-how in the bus segment while it is blank in the truck segment," Zhang said.

Guangzhou Automobile now runs a bus joint venture with Japan's Isuzu.

The Chinese firm also has two car joint ventures with Honda and Toyota.

But Jia Xinguang from the China Automotive Industry Consulting and Development Corp said: "Hyundai appears a little hot-headed as it is the fastest-growing foreign car maker in China with strong sales of its small-and-middle range models."

Sales of its joint venture in Beijing almost doubled to 859,000 cars in the first five months of this year from a year ago, ranking No 2 after General Motors' venture in Shanghai.

The venture produces Elantra and Sonata sedans and Tucson SUV, which was launched last week.

"Hyundai also faces risks as its aggressive expansion will aggravate over vehicle production capacity in China," Jia said.

"Its current sensational growth momentum in China could not last for a long time due to tough competition," he added.

China's auto market has slowed down sharply but remains one of the fastest-growing ones in the world.

Sales of China-made vehicles rose by 4.6 per cent year-on-year to 2.27 million units in the first five months of this year.

The growth was down from 15 per cent last year and 34 per cent in 2003.

(China Daily June 22, 2005)