The French automaker gained today full access to China’s auto market by sealing a joint venture agreement with state-owned Dongfeng Motor Group in Wuhan, a city fast shaping up as China’s own Detroit.
Nine years after the two companies first announced plans for the joint venture, they finally inked a $1.3 billion 50-50 partnership to introduce the French carmaker’s own locally assembled models in the world’s biggest auto market.
The deal allows Renault to fully tap demand in China, something it has been unable to do until now because of the lack of a strong local partner. China’s central government requires all foreign automakers to have a local partner to be allowed to produce cars in the country.
To build a Chinese presence, Renault has been forced to rely on imports from South Korea. Now with Dongfeng, it will invest 7.76 billion yuan ($1.28 billion) to build a factory in the central city of Wuhan, with the first car due to roll off the production line in 2016.
The carmaker’s investment is a boon to Wuhan, located about 700 km (430 miles) west of Shanghai and where the Yangtze and Han rivers intersect. The city, with a population of 17 million including its surrounding suburbs, is home to Dongfeng, China’s second-biggest automaker.
The Wuhan government is aiming to transform itself into a major automotive manufacturing and a logistics hub in China by attracting global automakers and their Chinese partners to open shop, which some say has turned the city into a dust-ball due to the frenzied construction activity.
Thanks to its central position and its rail, road and waterway networks it is better-positioned than other cities to become China’s Detroit – minus the bankruptcy, said Peng Zhimin, a regional economics researcher at the Hubei office of Chinese Academy of Social Sciences who advises the provincial government.
In addition to Renault, Wuhan is also home to the headquarters of Dongfeng’s joint ventures with Nissan, Honda and PSA Peugeot Citroen. Honda, Dongfeng and Peugeot also assemble cars in or around Wuhan.