China Engine to set up auto engine venture in mainland China

Taipei, Jan. 27, 2004 (CENS)--Taiwan's Ministry of Economic Affairs (MOEA) recently approved a mainland China investment filed by local automobile engine maker China Engine Corp.

China Engine, the island's sole complete-auto engine manufacturer, plans to jointly invest US$42 million to set up an auto-engine production venture with Fujian Motor Group of mainland China.

China Engine is a member of the Yulon Group, the largest automobile conglomerate in Taiwan. The Yulon Group is headed by Yulon Motor Co., which manufactures cars in cooperation with Nissan Motor Co. of Japan , and the group's another member, China Motor Corp., currently cooperates with Mitsubishi Motors Corp. of Japan to produce cars and commercial vehicles in Taiwan and mainland China.

China Engine Co. is set up to further upgrade the local content rate of Taiwan's auto industry. It is jointly established by the Taiwan government (which owns a 20% stake), Chiao Tung Bank (15%), Yulon Motor (20%), China Motor (20%), Sanyang Industry Co. (20%), and auto-parts maker Sengton Transportation Implements Co. (5%).

China Engine and a Virgin Island-based holding company of the Yulon Group would jointly set up the engine venture in the mainland, dubbed Fujian China Engine Corp., with Fujian Motor. The new venture will have a registered capital of US$15 million, but its paid-in capital reaches US$42 million, with Fujian Motor holding a 50% stake and China Engine and the said affiliated holding company each taking 25%.

The venture project was approved by the Chinese central government in November 2003, and the auto-engine production plant would be set up at a plant complex in Qingko Town, Mingho County, Fujian Province. The venture plant is scheduled to first produce 1.2L eight-valve and 1.3L 16-valve auto engines in the initial stage and will introduce a 2.0L 16-valve engine model for production in the future. China Engine said that the annual production volume at the mainland venture would reach about 90,000 to 100,000 engines in 2008.

The engines produced by Fujian China Engine be applied to commercial van and passenger sedan models produced by the South East Motor Corp., a 50-50 car-production venture between China Motor and Fujian Motor to produce automobiles developed by Mitsubishi of Japan and redesigned by the CARTEC (China Motor Asia Research & Technology Center) in Taiwan. Currently, South East adopts auto engines produced mainly by Shengyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd.

China Engine said that it filed the mainland investment project with the MOEA two years ago. But the ministry has been carefully studying the feasibility of the project, as the development of the core engine technologies of China Engine was partly sponsored by the subsidies of MOEA's Science and Technology Project budgets, which also commissioned local Industrial Technology Research Institute (ITRI) and some local automakers to jointly participate in the long-term project.

China Engine has successfully developed several auto engine models, including the latest 2.0L 16-valve model, but the domestic market is too small to achieve a scale of economy--annual production volume of lower than 20,000 units.

China Engine said that it was forced to develop more overseas markets to support its future engine development. After the establishment of the Fujian China Engine, on the other hand, local industry sources said, the Yulon Group would have a more comprehensive supply chain system in mainland China for its automobile production business deployment there.