BMW Makes Brilliant JV Deal In China

HONG KONG/FRANKFURT, July 12 Reuters reported that Luxury German carmaker BMW AG gained a foothold in China's potentially huge market on Friday when it won government approval to go ahead with a production joint venture.

The venture with Brilliance China, China's largest minibus maker, comes after both companies waited more than a year for formal approval. As a foreign company, BMW needs a local partner to produce its cars in China.

It will mark BMW's first venture into full production in Asia, where it currently only has "completely knocked down" production units which make cars from kits.

The companies said they would build a factory to produce 30,000 BMW 3 and 5 series cars a year, starting in the second half of 2003. BMW said the cars would all be sold in China.

Of the one million cars BMW plans to build this year, only about 60,000 will be sold in Asia. The company's new chief executive, Helmut Panke, has singled the region out as a potential growth area.

Neither Brilliance nor BMW gave a figure for the total investment in the project, or the size of their stakes.

BMW said Friday's announcement was an important step, but it still had to complete formalities before the venture could go ahead. The firms have to submit a joint venture contract and feasibility study to Chinese authorities, it said.

Analysts in Hong Kong welcomed the deal.

A BRILLIANT DEAL

"It will lift sentiment on the (Brilliance) stock as there had been so much uncertainty about the deal," said Patrick Pang, an analyst at South China Research.

Brilliance China shares have lost 10 percent in the past month and 15 percent in the past three months on concerns about the project's delay and media reports about government probes into its former chairman.

They closed at HK$1.09 on Friday, down 2.68 percent.

The deal will allow Brilliance China, which has been facing a fierce price war in the mainland minibus market, to diversify into car production.

But Pang said Brilliance China was unlikely to see any earnings contribution from the venture until the 2004 financial year.

BMW stock was 0.58 percent higher at 41.55 euros by 1657 GMT, while the European auto sector was 0.97 percent higher.

China has become more attractive to foreign carmakers since it joined the World Trade Organisation earlier this year, easing trade restrictions.

Other European carmakers like Volkswagen AG and PSA Peugeot have already set up joint ventures with Chinese carmakers to serve the mainland market.

Brilliance China said the joint venture would utilise the existing production facilities of Shenyang Jinbei Passenger Vehicle Manufacturing Co Ltd, a 51 percent-owned unit of the company.

It was not immediately clear how this unit is related to Shenyang JinBei Automotive Industry Holdings Co Ltd, which received approval for the BMW joint venture.