BMW boosts investment in Chinese joint venture

BMW to spend $4.1bn to take control of its China venture

BMW's key Chinese partner, Brilliance Automotive, plummeted by nearly a third on Friday morning in Hong Kong, after it announced the German vehicle giant will pay €3.6 billion (US$4.2 billion) to take control of their joint venture.

BMW will also invest more than £2.6bn in BBA's production facilities, including the construction of a new plant on the current site in Tiexi that will increase its Chinese production capacity to 650,000 units.

Daimler's Chief Executive Dieter Zetsche told Reuters last week that recent signals from the Chinese authorities were encouraging, but the German carmaker did not yet have legal permission to make a move.

China is in the process of relaxing its foreign ownership rules, with the joint venture requirement for auto producers due to be phased out in 2022. "Our success story goes hand in hand with the success of the joint venture BBA".

He said control of the joint venture could spur BMW to bring production of models like the BMW X4, X5 and X6 sport utility vehicles, which are now built in the United States, to China.

The rule changes already helped Tesla Inc to gain Beijing's approval for a wholly-owned China manufacturing and sales company in Shanghai.

In August, BMW posted a 6 per cent drop in its second-quarter, pre-tax profit, attributing it to a sales slowdown in the Chinese market, as consumers postponed auto purchases on the back of higher tariffs.

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The country is BMW's single largest sales market, with 560,000 vehicles sold there previous year.

The firm's shares were suspended on Thursday, but plunged as much as 30 percent on Friday to a 28-month low, with analysts saying the deal would substantially decrease Brilliance's long-term value.

BMW's request to take control of BBA came after the Chinese central government announced in April it would scrap foreign-ownership limits on local auto firms and open up the market by 2022.

Brilliance Auto, a state-owned vehicle company headquartered in Shenyang, briefly dropped 30 per cent to HK$7.51 on Friday morning before recovering slightly to close 27 per cent lower at HK¥7.90.

In August, China's new vehicle sales continued to fall, following a drop in July.

The term of the joint venture will also be extended to 2040 from 2028.

BMW said its deal will be completed in 2022.

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