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By Gong Zhengzheng (China Daily)
Updated: 2007-12-27 17:49

A new Chinese automotive champion will be born through a much-heralded cross-holding deal inked yesterday in Beijing between two rival carmakers.

Under the agreement, Shanghai Automotive Industry Corp (SAIC)'s publicly traded arm, SAIC Motor Co Ltd, will buy Nanjing Automobile Corp's entire vehicle and core component manufacturing assets for almost 2.1 billion yuan ($28.69 million).

Nanjing Automobile will also inject all other component, services and trade assets into Donghua Company, its existing joint venture with parent SAIC.

In return, Nanjing Automobile will hold 320 million shares of SAIC Motor, the listed firm, and a 25 percent stake in Donghua.

Trade of SAIC Motor's shares was suspended yesterday due to the deal. It closed at 27.01 yuan per share on Tuesday.

"The move is a landmark in China's fragmented auto industry. It's a win-win deal for both sides," said Yale Zhang, director of Greater China Vehicle Forecasts for US auto consultancy CSM Worldwide Corp.

Zhang said the agreement will help the two companies avoid product overlapping and use resources more efficiently.

SAIC, partner of Volkswagen and General Motors, in 2004 bought the intellectual properties of Rover 75 and 25 sedans, and K-series engines from collapsed British carmaker MG Rover. But Nanjing Automobile, partner of Fiat, last year purchased the MG brand, a plant in England and Powertrain, the engine unit of MG Rover, outbidding SAIC.

Also yesterday, Fiat announced it would pull out of its ailing passenger car joint venture with Nanjing Automobile. It will transfer its 50 percent stake in the joint venture to Nanjing Automobile. Earlier this year, Fiat formed a tie-up with Chery, another Chinese brand.

SAIC's own-brand Roewe sedan and Nanjing Automobile's MG75 sedan, both based on the Rover 75, are going head-to-head in the domestic market.

SAIC said in a statement yesterday that the merger will make SAIC a world-class auto company of an unprecedented scale in China, as well as build Nanjing Automobile into a major automotive production base in the country.

SAIC's January-November sales exceed 1.5 million vehicles, including those from its South Korean unit, Ssangyong Motors, it said. Nanjing Automobile has an annual production capacity of 200,000 vehicle.

Despite a slew of mergers and acquisitions in recent years, there are still more than 100 automakers in China, the world's second biggest vehicle market after the United States.