Dongfeng Volvo talks suspended due to policy barriers

Shanghai, July 21 (Gasgoo.com) Talks between Volvo Group and Dongfeng Motor Corp have been suspended again as a result of policy barriers, source from Dongfeng Motor Co told China Business News today.

The newspaper cited a senior executive from Dongfeng Motor Co as saying the company's plan to form a joint venture with Volvo was suspended as a divergence of Nissan's role in the project.

According to Chinese regulations, foreign investors should not take more than 50% stakes in their ventures with domestic companies and the number of their ventures in the country is strictly limited.

There is a 50:50 venture between Dongfeng and Nissan. If Dongfeng is to form a joint venture through its subsidiary Dongfeng Commercial Vehicle Co, Nissan will have to transfer its stakes in the commercial vehicle subsidiary to make the deal go ahead, a case Nissan is not expected to follow.

Or the three parties can establish a three-party venture, with Dongfeng holding 50%, Nissan and Volvo each holding 25%, though it has no precedent to go by.

Dongfeng and Volvo clinched a framework agreement in early 2007 on setting up a 50-50 joint venture to make heavy-duty trucks including a model to be launched globally. However after one and a half year, the deal was almost scrapped.

China's third-largest commercial vehicle manufacturer Dongfeng sold a total of 188,000 commercial vehicles in China last year when Volvo sold around 6,000 trucks in the Chinese market over past years.