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dg UPDATE 2-China approves Renault's $1.3 bln Dongfeng venture

Laurence Frost and Donny Kwok
Thursday, 5 Dec 2013 | 8:08 AM ET

* Dongfeng-Renault to have 150,000 vehicle capacity

* Deal builds on China presence through partner Nissan

* Signing ceremony announced for Dec 16

(Adds analyst, detail, background)

PARIS/HONG KONG, Dec 5 (Reuters) - Renault has won approval from Beijing authorities to begin Chinese production in a $1.3 billion joint venture with Dongfeng Motor Group , the carmakers said on Thursday.

The green light activates long-standing plans by the French carmaker to introduce its own locally assembled models in China, building on the presence of alliance partner Nissan and its existing venture with Dongfeng.

The 50-50 partnership "will allow Renault to deploy its ambitious strategy in the world's largest automotive market", the French company said in a statement.

Renault is a latecomer to China, where fast-growing demand for cars has helped peers including PSA Peugeot Citroen and Volkswagen to offset some of the lost sales during a six-year European market slump.

A total of 19.3 million vehicles were sold in China in 2012, against about 14.4 billion in Europe.

To build a Chinese presence for the Renault brand, Chief Executive Carlos Ghosn has been forced so far to rely on imports from the Renault Samsung Motors division in South Korea, led by its Koleos sport utility vehicle (SUV).

The rubber stamp from China's National Development and Reform Commission comes more than nine years after Renault and Dongfeng first announced plans for a joint venture.

The latest delay in winning final approval - which Renault had previously expected by the end of 2012 - means that production is unlikely to start before late 2016.

The new venture is good news for Renault's growth prospects but could complicate efforts by ailing French rival Peugeot to expand its own partnership with Dongfeng.

POSITIVE SIGNAL

"We struggle to see how a tighter relationship with Renault will help Peugeot in its negotiations for a deeper alliance," Barclays analyst Kristina Church said.

"The agreement sends a positive signal to the market in terms of Renault's expansion plans in China."

Renault shares were little changed at 61.58 euros at 1307 GMT, while Peugeot was down 1.7 percent at 11.91 euros.

Peugeot, which has said it is seeking a deeper alliance with China's second-biggest automaker, has discussed a capital increase in which the French government and Dongfeng would take significant minority stakes, sources have said.

A Peugeot spokesman declined to comment on the Renault-Dongfeng deal.

Nissan, 43.4 percent-owned by Renault, has become Dongfeng's most lucrative partner in the decade since their venture was created, with explicit provisions for its eventual extension to Renault.

Joint production came to 1.25 million vehicles last year and accounted for 59 percent of the Chinese carmaker's first-half net profit, according to Citi analysts.

The new operation, Dongfeng Renault Automotive Co, will produce cars and engines under both companies' brands, with initial annual capacity of 150,000 vehicles. It will also cover research and development, purchasing and marketing.

The venture will launch with a total investment of 7.76 billion yuan ($1.3 billion), Dongfeng said in a filing. More details are due to be announced at a Dec. 16 signing ceremony.

At the Beijing auto show in April last year, Renault showed a Talisman model adapted for China from Renault Samsung's SM7 sedan. The French carmaker also plans to produce an electric car and an SUV in the country, sources said at the time. ($1=6.0916 Chinese yuan)

(Editing by Kenneth Maxwell and David Goodman)

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