Chinese automaker Dongfeng Motor Corp and French partner PSA Peugeot Citroen announced yesterday in Beijing it plans to invest 600 million euros (US$759 million) to double the production capacity of their joint venture and introduce new models in the years to 2006.

The annual capacity of the joint venture, based in Wuhan, in central China's Hubei Province, will increase to 300,000 units in 2006, up from the current 150,000 units, according to Dongfeng President Miao Wei.

The plan came after the two parent firms increased the total capital of the joint venture by 1 billion yuan (US$120.7 million) to 7 billion yuan (US$845.4 million) in 2002.

The new capacity construction will cost 2.82 billion yuan (US$340.6 million), Miao said.

The joint venture will introduce three platforms of PSA Peugeot Citroen to produce small, medium and large-sized cars by 2006, which will cost 2.58 billion yuan (US$311.6 million), he said.

The joint venture, which is producing Citroen's Fukang, Picasso, Elysee and Xsara, will launch the Peugeot 307 during the first quarter of this year and another small-sized car next year, Miao said.

"We expect the venture's real annual output to reach 300,000 units in 2007,'' Miao said.

The joint venture's sales exceeded 100,000 units last year for the first time, up from around 85,000 units in 2002.

The venture's operating profits reach 1 billion yuan (US$120.7 million) last year, Miao said.

"We need new capacity to hit our targets in China," said Jean-Martin Folz, chief executive officer of PSA Peugeot Citroen, asked why the French carmaker decided to build the new capacity when there is an overall overcapacity in car manufacturing in China.

The joint venture aims to sell more than 140,000 cars this year.

"The venture's new capacity plan could be understood because it will soon lack capacity for the expected new models," said Yale Zhang, an analyst with Automotive Resources Asia Ltd, the industry consulting firm.

"The real redundant capacity mainly comes from those less competitive players in China and the world's major automakers' expansion with their Chinese partners will have no big problems," Zhang told China Daily.

Many Chinese and foreign companies are heavily investing to build new car manufacturing capacity in China, causing the sector to overheat.

"The joint venture is a very important part of Dongfeng's development strategy, especially for the passenger car business," he said.

The joint venture, established in 1992, has produced more than 400,000 cars.

Dongfeng, one of China's biggest State-run automakers, also operates three joint ventures with Japan's Honda and Nissan and South Korean Kia Motors.

Miao said Dongfeng's total automobile output grew by 12.75 per cent to 473,000 units last year from a year ago.

Dongfeng produced 219,000 passenger cars last year, up 65.5 per cent from 2002, he said.

"Passenger cars will be the major growth engine for China's auto market," Miao said.

Last year, China's total vehicle output reached 4.3 million units, including 2 million passenger cars.

In another development, Miao said "very positive progress" has been made in Dongfeng's negotiations with the other French automaker Renault for co-operation in heavy-duty truck business.

"We will announced our co-operation plan with Renault in a short period of time," he said.

The Dongfeng-Renault marriage is much-anticipated as Nissan, 44.4 per cent controlled by the French automaker, has formed a strategic partnership.

Last June, Dongfeng and Nissan launched a US$2-billion joint venture, the largest Sino-foreign auto joint venture in terms of investment, to produce 620,000 passenger cars and trucks annually by 2007.

(China Daily January 7, 2004)