Geely, China's privately-owned carmaker, says that it plans to acquire a local listed chemical firm in a new attempt to enter the domestic stock market.

The carmaker, based in east China's Zhejiang Province, is expected to buy a 30 to 40 percent stake in Northwest Yongxin Chemical Industry Co Ltd, a Shenzhen-listed company, said Xu Gang, Geely's chief executive officer.

"The deal will be worth some 100 million yuan (US$12.1 million)," Xu said.

Yongxin, based in Lanzhou, capital of northwest China's Gansu Province, produces paint and chemicals and has an annual capacity of 60,000 tons.

The company, which went public in 1997, has a registered capital of 189 million yuan (US$22.8 million) and 1,100 employees.

Northwest Paint Plant is now the biggest shareholder of Yongxin, controlling a 58.1 percent stake.

The acquisition plan comes after Geely last year failed to buy nearly 30 percent share of Anhui Quanchai Engine Co Ltd, a Shanghai-listed diesel engine maker based in east China's Anhui Province, because of resistance from the provincial government.

"Geely and Yongxin's businesses will be able to complement each other, if the deal comes through," Xu said.

Geely, which mainly depends on own development, is one of the fastest-growing carmakers in China although it is much smaller than foreign and domestic big names.

"But the most important thing for Geely is that the deal could help it raise more money from the stock market for its car business," said Zhang Xin, an auto analyst with Guotai & Jun'an Securities Co.

The carmaker badly needs money to fulfill its ambitious goals, Zhang said.

Geely, which started to make low-cost cars in 1998, aims to increase accumulated output in the next three years to 1 million units, up from more than 210,000 units at present.

Geely plans to invest heavily to increase its total production capacity to 650,000 cars annually by 2007 and to develop new models.

The new merger plan follows Geely's acquisition of a 20 percent stake in its joint venture partner Guorun Holdings Co, a Hong Kong-listed investment firm, at the beginning of this year.

Guorun, which has been renamed Geely Automobile Holdings Co, runs two joint ventures with Geely in Shanghai and Ningbo - a city in Zhejiang Province.

Geely and the Geely Automobile Holdings Co have 53.2 and 46.8 percent shares respectively in the joint ventures.

Last month, Geely announced that it will channel a 90 percent stake, or 723 million yuan (US$87.3 million) of its other two car plants in Taizhou and Linhai in Zhejiang into the two joint ventures.

The carmaker will launch a new model designed by South Korea's Daewoo International Kaisha Corp later this year. It will also produce new models engineered by Germany's Luc Co and the Italian Car Projects Group next year and later.

Geely's current product portfolio includes the Haoqing, Merrie, Ulion, Meirenbao and Maple.

Geely aims to double sales to 160,000 cars this year from last year.

Xu said the company sold nearly 50,000 cars during the first five months of this year.

Many Chinese automakers are seeking stock market listings to raise money to facilitate their expansion in the booming domestic car market, despite warnings of overheating investment in the industry.

Dongfeng Motor Corp, one of China's top three State-run automakers, plans to launch an initial public offering in Hong Kong later this year.

Another big name, the Shanghai Automotive Industry Corp, is also contemplating a listing on the domestic or overseas stock markets.

In another development, Xu said: "It is reasonable that China's new auto policy has enhanced access to the auto industry for non-auto enterprises."

The new policy, launched two weeks ago, says that automakers in China which "could not maintain normal operations" will be forbidden to transfer their production permits to non-auto and motorcycle enterprises and individuals.

Total investment in any new auto project must stand at 2 billion yuan (US$241 million) or more, including a product research and development organization with an input of at least 500 million yuan (US$60 million).

Plans of many non-auto firms in China, especially private businesses, to enter the auto industry will be nullified by the policies.

"Blind and irresponsible investment and speculation should be avoided in the auto industry as it is a technology-and-capital-intensive sector which has excessive production capacity in China," Xu said.

"Conditions now are different from six years ago when we entered the auto industry. Competition in the industry is much fiercer now than at that time."

(China Daily June 15, 2004)