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BAIC acquires Baolong to push expansion in south China

GUANGZHOU – Beijing Automotive Industry (Holding) Corp. (BAIC) signed a cooperation agreement with the Zengcheng district government of Guangzhou, Guangzhou Jingye Investment Co. and Guangzhou Zengcheng Asset Management and Investment Co., Ltd. on August 18 to build a 300,000-vehicle production base in the Zengcheng District by restructuring the production facility of Guangzhou’s Baolong Light Vehicle Co., Ltd. (Baolong), according to a report in Southern Metropolis Daily.

Under the agreement, BAIC will invest a total of ¥5 billion ($736 million) to expand Baolong’s existing plant in Guangzhou and to add a new plant in the city, the company said in a statement. The project will be finished in two phases and build a combined capacity of 300,000 vehicles a year. Upon completion, BAIC’s South China production base is expected to bring in ¥20 billion worth of revenue and possess ¥80 billion output value per year.

BAIC will take over 100 percent of Baolong, including its shares, land, buildings, facilities, production license, etc, with support from the local government in the form of policy, land and capital.

 

Heading south

BAIC chooses its South China production base in Zengcheng because of its geographical advantages, BAIC’s chairman Xu Heyi told media at the signing ceremony. Zengcheng is located in the heart of Guangzhou-Shenzhen economic zone, adjacent to production plants of GAC-Honda, GAC-Toyota and Dongfeng-Nissan. “BAIC’s independent project will mark a major step forward in Guangzhou,” Xu was quoted as saying.

BAIC, which makes cars in Beijing in partnership with Daimler and Hyundai, also wants to set a foothold in the highly competitive South China market. The deal, if it goes ahead as planned, will give BAIC a stronger presence in southern China, which is dominated by Guangzhou Automobile Group, its Japanese partners of Toyota and Honda, as well as Nissan.

Wang Dazong, BAIC’s president, told media that the company’s existing production bases are mostly concentrated in Beijing, lagging behind rivals in terms of nationwide production layout. BAIC must strive to be a national player. “Mergers and acquisitions is an important means to realize our nationwide expansion plans,” Wang said.

BAIC just built its second microvan production base in Chongqing this August through a joint venture. The Guangzhou base marks an important step in its nationwide expansion. Its Hunan base is scheduled to enter production at this yearend and construction of a high-end independent branded passenger vehicle production and R&D base will start soon. By acquiring Baolong, the Beijing-based automaker will finish the strategic planning of its independent brand vehicle project in Central, South, Southwest and North China.

Zhang Xin, industry analyst with Guotai Junan Securities, said that South China is one of the major domestic auto markets. The Baolong deal will enable BAIC to work closely with customers in the South China market and facilitate production of its own-brand vehicles.

Baolong is a privately owned company that develops, manufactures and sells light passenger vehicles.

BAIC produced 1.271 million vehicles in 2009, ranking fifth among domestic automakers in terms of both sales revenue and vehicle output.

 

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