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Honda Eyes Fast Expansion in Auto JV

Japanese auto giant Honda Motor Co said Monday it and Chinese partner Dongfeng Motor Corp plan to invest 2.8 billion yuan (US$338.2 million) to quadruple the annual production capacity of their car joint venture.

The annual capacity of the joint venture in Wuhan, the capital of central China's Hubei Province, will increase to 120,000 vehicles in 2006 from the current figure of 30,000, Honda announced.

"The joint venture will introduce new models, including the Civic, to satisfy mounting demand in China," added the company.

The firm will also dramatically increase staffing at the joint venture to 2,800 in 2006 from the current figure of 930.

Honda and Dongfeng formed the 50-50 joint venture in July 2003, with a registered capital of US$98 million, through the joint acquisition of a plant previously owned by South Korea's Hyundai Motor and a local firm.

The joint venture started to produce CR-V sports utility vehicles this April.

The expansion plan defies the slowing growth in car sales and excessive production capacity being built in China.

Sales of domestically-manufactured vehicles rose 18.36 percent year-on-year to 3.73 million units in the first nine months of this year.

That growth was down from last year's 34 percent. Passenger cars sales fell to 20.68 percent during this period from 75 percent during the same period last year.

Foreign media reports said that Honda's other car joint venture with Guangzhou Automobile Group in Guangzhou, the capital of southern China's Guangdong Province will also invest 20 billion yen (US$190 million) to build a new plant with an annual production capacity of 211,500 cars.

But a Beijing-based Honda official speaking to China Daily claimed that "those reports on the joint venture in Guangzhou are inaccurate. We will reveal new plans for it very soon."

The joint venture in Guangzhou, formed in 1997, now has an annual production capacity of 240,000 units and turns out the medium-sized Accord sedan, the Fit compact car and sedan, and the Odyssey commercial wagon.

"Many foreign automakers are building massive new production capacity in China despite plunges in sales growth, let alone Honda whose sales are growing much faster," said Xia Jun, an auto analyst with CCID Consulting Co Ltd, the Beijing-based and Hong Kong-listed industry consultancy.

Honda is one of few foreign automakers still experiencing robust sales growth in China.

The company sold 167,406 cars in China from January to October this year, including Hong Kong and Macao, jumping 169 percent year-on-year, the official said.

These sales included 154,794 units from the Guangzhou joint venture and 8,225 from the Wuhan venture.

The Accord is one of the best-selling models in China with sales reaching 84,183 units in this period.

General Motors China Group said that sales of the world's No 1 automaker surged by 32.4 percent year-on-year to 404,222 units in China during the first 10 months of 2004.

Other big names, such as Volkswagen, PSA Peugeot Citroen and Fiat, are suffering a sharp decrease in sales growth in China this year.

Analysts say the expansion plan of the Honda-Dongfeng venture could indicate that the Japanese firm "has started to lean to Dongfeng, instead of Guangzhou Automobile, in its China strategy."

They attribute Honda's preference for Dongfeng - one of China's top three State-run automakers - largely to the much earlier collaboration between the two sides than that between Honda and Guangzhou Automobile, and the Guangzhou firm's new partnership with Toyota.

Honda and Dongfeng formed two joint ventures in the early 1990s to produce engines and spare parts.

Guangzhou Automobile and Toyota launched a joint venture in Guangzhou in September to make the Camry sedan starting from 2006 with an initial annual capacity of 100,000 units.

Honda, Dongfeng and Guangzhou Automobile also have a tripartite car joint venture in Guangzhou, in which the Japanese firm controls a 65 percent stake.

The venture will start to build small-sized cars at the end of this year with an annual output of 50,000 units and all of them will be exported to Europe.

(China Daily November 9, 2004)

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