China's auto giant FAW is expected to become involved in economy car production once it has controlling shares in Tianjin Automotive Xiali Co., the country's major economy car producer, following a deal signed in Beijing Friday.

In the biggest ever asset regrouping move between national auto companies in China, the Changchun-based First Automotive Works Group (FAW), and the Tianjin Automotive Industry Corporation Group (TAIC) signed an agreement.

Under the agreement, TAIC which controls Tianjin Automotive Xiali Co., will sell 60 percent of its shares in Tianjin Xiali Co., and 75 percent of the shares owned by the Chinese shareholders of Huali Co., to FAW, one of China's three biggest auto producers.

The deal will enable FAW, a state-owned firm with assets worth 59 billion yuan at its disposal, to move into economy car production.

Experts say the deal will also make Japanese car producer Toyota a cooperative partner of FAW as FAW will become the biggest Chinese shareholder in a joint venture between TAIC and Toyota.

FAW and TAIC and Toyota will produce not only economy, but probably also intermediate and luxury cars in the future, said the experts.

Huang Shuhe, vice minister of the State Economic and Trade Commission, said the deal is an independent business deal under the guidance of the central and local governments.

The vice minister described the move as a natural trend for China's auto sector enabling it to meet the challenges arising from China's entry into the World Trade Organization (WTO).

FAW General Manager Zhu Yanfeng said the deal is a good way for the two groups to step up restructuring, expand their business scope and improve their market competitiveness.

Zhang Shitang, TAIC board chairman, said the asset regrouping is complementary for both groups in terms of products.

It's a win-win situation, said Zhang.

TAIC, which is based in the port city of Tianjin, north China, is capable of producing 230,000 cars, 270,000 engines and 10,000 large tractors annually, while FAW manufactured and sold about 400,000 cars last year.

(Xinhua News Agency June 15, 2002)