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China steps up investments in automotive industry

Munich

CHINA has long been a key market for global automotive manufacturers. Now the country is asserting its role as an investor in the industry, stepping up the pace of purchases in the car and heavy-truck sector.

The latest foray: state-backed Beijing Automotive Group Co (BAIC) is buying a 5 per cent stake in Daimler AG, the maker of Mercedes-Benz. The announcement caps an increasingly active period for deals - of the major transactions where a Chinese company bought a stake in a non-Chinese automotive firm since 2008, more than half occurred in the past two years, according to data compiled by Bloomberg.

Billionaire Li Shufu's Zhejiang Geely Holding Group Co was a pioneer, buying Volvo Cars from Ford Motor Co. in 2010. After that, it took almost four years until another Chinese firm again considered the sector, when Dongfeng Motor Corp participated in a capital increase of Peugeot SA and received a stake of about 14 per cent in return.

The single biggest investment in the category is Geely's stake in Daimler, which it bought for US$9 billion in February 2018, gaining about 9.7 per cent of the company and making it the single biggest shareholder in the German luxury-car company.

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The purchase by BAIC makes it the third-largest shareholder of Daimler and represents the biggest strategic investment by a Chinese government entity into a global carmaker. The German company also owns a big chunk of the Chinese partner's Hong Kong-listed unit.

"Two Chinese companies having interest in the same foreign automaker shows that Chinese companies are interested in investing in strong foreign brands," said Rachel Miu, a Hong Kong-based analyst at DBS Group Holdings Ltd in Hong Kong. Though the China-US trade war is making it hard for firms to do so, Chinese companies are not going to give up on their plans to globalise, she added.

The Daimler investment paves the way for one of China's industrial champions to get better access to high-end automotive technology at a time when China's own car market, the world's largest, is weathering through a year-long slump. That is giving local companies more incentive to look elsewhere for growth, even though Europe and the US are also experiencing slowdowns of their own auto markets.

Closer ties between Daimler and BAIC, China's biggest producers of electric cars, may also allow the firms to pool resources as the industry shifts toward electrified and self-driving vehicles. Electric-car entrants such as Tesla Inc and China's NIO Inc represent a threat to traditional carmakers, while technology companies including Baidu Inc, Tencent Holding Ltd and Alphabet Inc's Waymo are making a push into autonomous vehicles.

"The deal improves the ties between BAIC Group and Daimler," said Toliver Ma, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong. "We expect more strategic cooperation between the two companies."

Affiliation with Western brands gives Chinese companies potential credibility as they seek to win over consumers in Europe and the US down the road. BLOOMBERG

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