Is China stalling over Hummer buy?

BEIJING/NEW YORK (Reuters) - A Chinese machinery maker's acquisition of General Motors Co's loss-making Hummer brand could be stalling as Beijing frets that a failure to turn around the macho gas-guzzler may dent China's image abroad.

Chances for regulatory approval of the deal have dimmed in recent weeks, according to three sources with links to Chinese regulators, GM and the buyer, Sichuan Tengzhong Heavy Industrial Machinery -- a little-known company with no experience in either making cars or managing a foreign company.

One source said the chances of having the deal approved had dropped to 50-50, adding that the Hummer profile also works against it as Beijing pushes for a greener economy and the global trend shifts to more environmentally friendly, low-emissions driving.

"How can you say you support a low fuel-efficiency and high-cost auto project when the whole country is promoting 'green' cars?" asked the source.

Regulators in Tengzhong's home province of Sichuan support the deal and are waiting for positive signs from Beijing before seeking final approval from the Ministry of Commerce, according to two sources close to Tengzhong and the regulator.

They and other sources with direct knowledge of the deal, which was first reached last year, spoke on condition of anonymity due to the fluid situation.

The commerce ministry has said it has yet to receive an application, even as a deadline set by GM and Tengzhong -- already extended by a month -- looms at the end of this month. That may need to be extended again as much of China closes down next week for the Lunar New Year.

Sichuan likes the deal as it promises jobs, investment and global recognition for the inland province, said one source.

"For the provincial government, it's only a matter of procedure," that source said. "If the central government is supportive, they will certainly bring the case to Beijing."

But Beijing worries that China's image could take a beating if Tengzhong fails to revive Hummer, best known for its outsize all-terrain vehicles, the sources said.

Tengzhong and Hummer are keenly aware of the government's fuel-efficiency drive, Tengzhong General Manager Yang Yi told Reuters last year.

"We want to make a green Hummer," he said then.

TURNING POINT

The deal is expected to save over 3,000 jobs in the United States related to making and selling Hummer vehicles, which are sold in 38 countries around the world.

One source close to the regulator said Tengzhong has been lobbying Beijing very hard in recent weeks. But its effort may be failing to impress central leaders.

A U.S.-based source with knowledge of the situation said the deal is at a turning point, and could go either way.

A GM spokesman had no immediate comment, while a Tengzhong spokeswoman reiterated that the deal is still awaiting approval.

"We will do our best in conjunction with the government's approval process," she told Reuters, declining further comment.

The deal was first greeted with skepticism, as Hummer has long been criticized for its size and poor fuel economy, but the tone later became more positive, with observers saying late last year the deal had a good chance of closing.

Support from Beijing has been critical for Chinese firms that have embarked on a series of deals to pick up distressed assets from a global auto industry reeling from overcapacity and sharply depressed demand during the worldwide recession.

Beijing Automotive Industry Holding Corp (BAIC), China's fifth-ranked automaker, closed its $200 million purchase of car designs from GM's Saab in just two weeks, and Zhejiang Geely Holding Group's bid to buy Ford's Volvo cars unit is also believed to enjoy government support.

Zhejiang Geely is the parent of Hong Kong-listed Geely Automobile Holdings Ltd.

Both of those deals are more straightforward -- the former involving buying proven intellectual property and the latter buying a well-respected brand that has fallen on hard times due to its small scale and high cost structure.

Executives and investors at Tengzhong, founded in 2005 and now employing 4,800, are said to be well connected in Sichuan, but are feeling frustrated about the drawn-out approval process.

Suo Lang Duo Ji, a major Tengzhong shareholder cited by Chinese media as the brains behind the Hummer deal, told Reuters he is hopeful the acquisition can be concluded this spring.

"But it all depends on the government," he told Reuters last week in his first interview with foreign media.

(Editing by Doug Young and Ian Geoghegan)