Beiqi Foton, Daimler to form $929 mln truck JV

Major Chinese truck maker Beiqi Foton and Daimler AG have agreed to set up a 50-50 truck venture with total investment of 6.35 billion yuan ($929 million), securing the German company a foothold in China's truck sector.

Beijing Foton Daimler Automotive Co will start producing diesel engines in 2011 and trucks in 2012, with annual heavy-duty truck sales projected at 100,000 units from 2012 to 2015, the Chinese firm said on Wednesday.

Unlike most foreign auto ventures in the country, which mostly target the Chinese market, the world's second-largest, Beijing Foton Daimler aims eventually to become a global player.

The partners have agreed to set up joint ventures in Russia, south Asia and Latin America after the planned engine and truck project takes off, the statement said.

Daimler currently makes Mercedes-Benz sedans and multi-purpose vehicles in China but has no truck-making ventures.

Analysts said the venture would help Beiqi Foton to compete with larger domestic rivals such as Sinotruk and Dongfeng Motor Group Co, a Nissan Motor partner in China.

But they also warned about potential pitfalls such as trade barriers in overseas markets, while Chinese automakers and joint ventures have had limited success in overseas markets.

Boost in Status

"It's a good move. Foton is currently in the second-tier camp at home and a venture with Daimler will certainly help to boost its status," said Chen Qiaoning, an analyst with ABN AMRO TEDA Fund Management.

"But a partnership is no guarantee for success in the future, especially if they want to operate on a global level."

Other analysts cited Chery Automobile's aborted effort to sell cars in the United States to highlight the challenges facing emerging Chinese automakers overseas.

After years of talks, Chery and Chrysler LLC, which Daimler sold in 2007, reached agreement in July 2007 for the Chinese automaker to manufacture compact cars under the Chrysler badge for sale in the Americas.

But the two sides abandoned the plan after Nissan reached a similar deal with the U.S. automaker in April of last year.

Both Foton and industry analysts are optimistic about the venture's prospects at home, however, especially given a 4 trillion yuan economic stimulus package unveiled by Beijing that aims to bolster the slowing economy and will focus on infrastructure construction.

In a statement, Beiqi Foton said it expected 18 percent annual industry-wide growth in heavy truck sales in China over the next two years, helped by the stimulus plan.

Official data shows sales of commercial vehicles in the country, including buses and trucks, rose 7.65 percent to 2.47 million units in the first 11 months of last year.

Beiqi Foton's shares were unchanged at 5.27 yuan in late afternoon trade, compared with a 0.5 percent fall in the benchmark Shanghai Composite Index .SSEC.

The venture, to be established in August, is still subject to shareholder and regulatory approval.