July 5, 2009 / 1:40 PM / 9 years ago

Fiat, Guangzhou Auto to sign factory deal

ROME (Reuters) - Car maker Fiat SpA FIA.MI will sign a deal for a plant in China with Guangzhou Automobile Industry Group on Monday, Chinese officials said on Sunday, an important step into a market that is booming against the trend.

“They’ve had discussions with Guangzhou Automobile and they’re about to set up a factory in China,” Sun Yngfu, director-general of European Affairs at China’s commerce ministry, told journalists in Rome on Sunday.

The agreement should be signed around 12 noon local time (1000 GMT) on Monday, a Chinese official said.

Fiat, which has just taken a 20 percent stake in U.S. automaker Chrysler, has long sought a strong partner in China, where car sales are booming in contrast to slack demand in Europe and the United States.

Fiat Chief Executive Sergio Marchionne said last month his company was close to a deal in China with the Guangzhou group.

“We’re very interested in cooperation in the auto sector,” Yngfu said.

Marchionne wants Fiat to gain scale to face a global crisis for the industry triggered by slumping demand and a credit crunch for consumers.

He bid for Opel, the European unit of General Motors Corp GMGMQ.PK, but pulled out of talks and now says he is still interested but will not improve the offer.

Another Chinese car maker, state-owned Beijing Automotive, submitted a late bid for Opel on Friday, rivaling an offer from Canadian auto parts maker Magna. <MGa.

On Sunday, business daily Il Sole 24 Ore said the alliance between Fiat and Guangzhou will see a joint production plant launched in China in 2011 to produce a new version of Fiat’s Linea model and, subsequently, Fiat’s Bravo and Grande Punto models.

    A Fiat spokesman said he could not confirm the report.

    The alliance with Guangzhou is expected to be split equally between the two companies, Il Sole 24 Ore said.

    Fiat’s earlier attempts to gain a foothold in China, where car sales soared 47 percent in May, have stalled.

    In March, China’s Chery Automobile Co delayed a joint venture with Fiat, citing the industry downturn.

    Those talks came after Fiat pulled out of an alliance with Nanjing Automotive in 2007 when the Chinese company merged with SAIC Motor Corp (600104.SS).

    Writing by Nigel Tutt and Jo Winterbottom; editing by Simon Jessop and Matthew Lewis

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