Renault has signed a joint venture agreement with Chinese state-owned Dongfeng Motor Group, aiming to boost its presence in the world’s biggest car market by supplying locally manufactured vehicles.
In the framework of the £800m 50-50 deal, which Renault has been negotiating since 2004, Renault’s vehicles will be assembled in Dongfeng’s facilities in Wuhan, sometimes dubbed China’s Detroit. A new factory will be built in the city with the first vehicles expected to roll off the production line in 2016.
Having a strong local partner will allow Renault to fully adapt to Chinese demands and better exploit the market’s opportunities as China's central government requires all foreign automakers to have a local partner to be allowed to produce cars in the country.
So far, Renault has been relying on imports from South Korea to build its presence in China.
Renault, which has a long-standing alliance with Japan's Nissan Motor with whom it shares technology, plans to manufacture 150,000 cars a year in Wuhan and set up a jointly run network of retail stores. Nissan has been operated in China since early 2000s after having signed a similar agreement with Dongfeng.
Honda and PSA Peugeot Citroen have also signed agreements with Wuhan-based Dongfeng, China’s second biggest car producer.
Wuhan, located some 430 miles west of Shangai, aims to transform itself into a major car manufacturing and logistics hub in China.
Analysts believe the city, situated on the intersection of two major rivers and well connected through railway and road networks, offers better conditions to local and foreign car makers than any other Chinese city.
"Wuhan has a reputation of being the Oriental Chicago. The city's developed transportation and logistics systems give it an advantage," said Peng Zhimin, a regional economics researcher at the Hubei office of Chinese Academy of Social Sciences who advises the provincial government. "We can easily deliver vehicles and auto components via the Yangtze River to consumers in Shanghai, for example," he said, stating bankruptcy as Wuhan’s major drawback.
The city, which currently has the capacity to produce roughly 1 million vehicles a year, is aiming to boost that to 3 million by 2016. Much of that planned capacity boost will come from Renault's joint venture with Dongfeng and other global automakers such as Peugeot, which is close to getting a sizeable capital injection from Dongfeng.
Reuters reported last week that Peugeot's board had approved an outline deal that would see the French state and Dongfeng take matching 20 per cent stakes in Peugeot with a share issue to be priced at below 7 euros a share. Peugeot said on Thursday that discussions with Dongfeng were at a "preliminary stage", with no guarantee they would conclude successfully.