Peugeot-Citroen in new car-making venture in China

French car maker PSA Peugeot-Citroen said Thursday it has signed a letter of intent with China's Changan Automobile Group to set up a joint venture to make cars and light-commercial vehicles in China.

It will be the French company's second joint-venture in China and is in line with its ambition of boosting its sales in the fast-growing Chinese market.

The announcement confirms a Dow Jones Newswires report last month.

Peugeot-Citroen, Europe's second-largest car maker after Germany's Volkswagen AG, already has a joint-venture with China's Dongfeng Automobile Co. Ltd.

Last year Peugeot-Citroen and Dongfeng produced 272,000 cars for a market share of 3.5%. This year, it expects to make more than 350,000 vehicles for a market that the French company expects to grow by 20% compared to 2009.

The two companies have two assembly plants at Wuhan with a combined capacity of 450,000 vehicles. On Wednesday, Peugeot-Citroen Chief Executive Philippe Varin said that his company is considering a third plant to take advantage of the world's fastest-growing market.

Peugeot-Citroen and Changan are discussing the details of their project, but didn't give any other details of what vehicles are envisaged, except to say that the 50-50 company "will produce environmentally friendly vehicles, and will complement both parties' existing joint ventures in China, without direct competition."

On Wednesday, Varin didn't rule out the possibility that his company could move into the low-cost end of the automobile market, but said that any such vehicles wouldn't carry the badges of the Citroen or Peugeot brands.

The company's existing joint-venture in China produces small cars like the Peugeot 207, Peugeot 307, Citroen C2 and variants of other models specifically adapted for the Chinese market.

Industry analysts said the link-up with Changan is likely to be similar to Peugeot-Citroen's venture with Dongfeng. Up to now, Peugeot-Citroen has followed a strategy of targeted industrial partnerships, rather than full-fledged alliances cemented by cross-shareholdings.

The French company has existing partnerships for specific products with Fiat SpA, BMW AG, Ford Motor Co., Renault SA and Mitsubishi Motors Co.

Changan, China's fourth-largest auto manufacturer by volume, already assembles passenger vehicles for Ford, and also has a joint-venture with Suzuki Motor Corp.