Consolidation as Dongfeng deals for Fujian Motor

It has had discussions with Guangzhou Automobile Group and Beijing-based BAIC Group.

But Dongfeng's status as a large enterprise under the management of the State-owned Assets Supervision and Administration Commission of the State Council made it stand out from the competition, said industry observers.

The carmaker based in Central China's Hubei province is the nation's second-largest carmaker only after SAIC Group.

It operates joint ventures with Honda, Nissan, Kia, PSA Peugeot Citroen and Yulon Motor Co from Taiwan. It also makes vehicles under its own brands Fengshen, Fengdu and Fengxing.

Dongfeng sold 3.07 million vehicles last year including about 515,000 own-brand passenger cars.

The company said in a statement that the strategic cooperation with Fujian Motor will help boost sales of its own-brand passenger vehicles.

It has set a target of doubling annual sales of its own-brand passenger vehicles to 1 million units by 2016.

Dongfeng also said that Fujian's location on the country's southeast coast will facilitate exports.

It plans to increase exports to 300,000 vehicles a year by 2016.

Analysts noted that Dongfeng's recent move is also driven by its ambition to expand its business geographically.

Almost every large auto group in China is now expanding across the nation, usually by cooperating with smaller, local manufacturers or taking over existing facilities.

Also in the past week, Guangzhou Automobile Group, a major carmaker in Southern China, agreed with smaller SUV and pickup maker Zhongxing Auto on joint development in Yichang, Hubei province.

The agreement will allow Guangzhou Automobile to restructure Zhongxing's subsidiary in Yichang and make inroads to the central province where it had no production before.

The moves by big auto groups are in line with the central government's call for further consolidation in the sector, said analysts.

The last big merger in China's auto industry was in 2009 when State-owned Chang'an Automobile Group based in Chongqing acquired the two automobile manufacturing subsidiaries of aircraft maker Aviation Industry Corp of China.