Dongfeng Motor Corp, China's third biggest auto group, is in talks to take over the microbus and vehicle engine businesses of Hong Kong-listed aircraft producer AviChina Industry & Technology Co Ltd.

"We are in active talks, according to our plan," said Xu Ping, general manager of the parent of Hong Kong-listed Dongfeng Motor Group Co Ltd.

Xu said AviChina plans to spin off its microbus and vehicle engine units - Hafei Automobile Group and Shanghai-listed Harbin Dong'an Auto Engine Co Ltd - to focus on its core business of aircraft.

However, he didn't reveal a timeframe and other details for the expected deal.

Mergers and acquisitions are badly needed for China's fragmented auto industry. Last year, SAIC Motor Corp, the country's top automaker, took over Nanjing Automobile Corp.

Xu, also chairman of Dongfeng Motor Group Co Ltd, said the Hong Kong-listed company is considering returning to the A-share stock market.

"We intend to enter the A-share market for a long-term sound and fast development," he said, again without specifying a timetable.

But analysts said time is not ripe for Hong Kong-listed companies to return to the mainland stock market when the Shanghai Composite Index has plunged almost by half from its peak of 6,124 points last October.

Dongfeng closed at HK$4.25 per share yesterday, surging 8.7 percent.

Xu said the parent Dongfeng aims to sell 1.3 million vehicles this year, up from 1.14 million units in 2006. It expects sales revenue to grow to 180 billion yuan from 164.8 billion yuan, he said.

In the first quarter of this year, the company moved 339,100 vehicles, an increase of 29.5 percent year-on-year.

Li Shaozhu, deputy general manager of Dongfeng, said the company will roll out its first own-brand passenger car model at the end of this year in the central city of Wuhan, its home base.

The company plans to launch more than 10 own-brand passenger car models within five years, Li said.

Dongfeng now runs a slew of car joint ventures with Honda, Nissan, PSA Peugeot Citroen and Kia.

The company and these joint ventures are displaying 31 models at a booth of 4,164 sq m in the 2008 Beijing International Automotive Exhibition that is to open to the public today.

Sales of China-made vehicles jumped by 21.4 percent to 2.58 million units in the first quarter, according to industry data. Sales for the full year is predicted to exceed 10 million units, up from 8.79 million in 2007.

(China Daily April 22, 2008)