German-US auto group DaimlerChrysler AG will acquire a stake of major Chinese truck producer Beiqi Foton Motor Co, but its plan to build Mercedes-Benz trucks in China with the Shanghai-listed firm still faces obstacles.

DaimlerChrysler will buy 297 million shares issued by Foton for 816.8 million yuan (US$104.1 million), the Chinese company said yesterday in a statement to the Shanghai Stock Exchange.

The deal will enable DaimlerChrysler to have 24 percent of Foton and become its second biggest shareholder after Beijing Automotive Industry Corp (BAIC), China's No 5 vehicle manufacturer.

Foton said DaimlerChrysler will be its strategic overseas investor which means that the German-US automaker will hold its stake for at least three years according to government rules released in January.

Foton closed at 3.77 yuan (48 US cents) per share yesterday, up 4.43 percent.

According to a strategic agreement reached in 2003, DaimlerChrysler planned to make Mercedes-Benz sedans at an existing joint venture with BAIC and form a new venture with Foton to make Mercedes-Benz heavy-duty trucks. Mercedes-Benz is an affiliate brand of DaimlerChrysler.

Production of Mercedes-Benz E-Class sedans kicked off at the beginning of this year in Beijing.

However, the plan to form a truck venture with Foton has been suspended as a result of DaimlerChryler's multiple partnerships with different Chinese companies and restrictions from the nation's auto industry policy.

DaimlerChrysler in 1997 formed a joint venture with Yangzhou Yaxing Motor Coach Co in Yangzhou, East China's Jiangsu Province, to produce Mercedes-Benz large-sized buses.

At the end of 2003, DaimlerChrysler also clinched a deal with Fujian Automotive Industry Corp in Fujian Province to make Mercedes-Benz light-duty trucks. The project has been approved by Chinese regulators.

However, according to the Chinese policy, a foreign automaker is allowed to set up at most two joint ventures in China with different domestic companies to produce the same types of automobiles, passenger vehicles or commercial vehicles. Both trucks and buses are seen as commercial vehicles.

Asked how its truck venture plan with Foton will go, Trevor Hale, the spokesman for DaimlerChrysler (China) Investment Co Ltd, told China Daily: "We have been in discussions with Foton for quite some time to co-operate to offer medium-to-heavy-duty trucks in China. Until the approval process is complete, we can't comment further."

It has been reported that DaimlerChrysler will pull out of the bus venture in Yangzhou to make room for its planned truck venture with Foton.

Hale said the German-US group continues to work with Yangzhou Yaxing to seek ways to "optimise our business together."

"DaimlerChrysler is committed to the city of Yangzhou and is considering additional projects there," he added, without elaborating.

The bus venture in Yangzhou has been in the red for years due to sluggish sales.

Yale Zhang, director of emerging-markets vehicle forecasts for auto consultancy CSM Asia in Shanghai, yesterday said DaimlerChrysler would have to withdraw from the bus venture if it still wanted to form a truck venture with Foton as China's auto industry is unlikely to change any time soon.

Jia Xinguang, an independent auto industry commentator in Beijing, said DaimlerChrysler is likely to pull out of the bus venture in Yangzhou which has so far been valueless.

Jia cited Italian commercial vehicle maker Iveco's withdrawal from a loss-making bus venture earlier this year in Jiangsu Province with a local firm in a bid to form a truck venture with Shanghai Automotive Industry Corp China's biggest auto group in line with industry policy. Iveco also runs a light-duty truck venture in Jiangsu with another local partner.

"But DaimlerChrysler will possibly cooperate with Yangzhou Yaxing in engines or spare parts as a compensation for the latter," Jia said.

Other global truck makers, such as Sweden's Volvo and France's Renault, are also investing heavily in China to cash in on booming truck demand boosted by the nation's rapid economic growth and growing construction sector.

Foton said it will spend the money from its latest share issue, upgrading its products and assembly lines, paying back bank loans and replenishing its cash flow.

The company's sales grew by 7.8 percent year-on-year to 181,000 vehicles in the first half of this year, including 173,000 trucks.

(China Daily December 1, 2006)