PSA Peugeot Citroën has agreed to establish a joint venture to build cars and light commercial vehicles in China with Chang’an Automobile.

The French carmaking group said that the 50:50 joint venture would produce “environmentally friendly” models for the Chinese market, but gave no further details.

The venture will be the second Chinese partnership for Peugeot. The French carmaker has a similar arrangement with Dongfeng Motors, with which it makes cars at Wuhan and Xiang Fan plants, in the southern Hubei province.

The deal is the third for Chongqing-based Chang’an, which builds Ford, Volvo and Mazda cars with Ford Motor and has another automaking joint venture with Suzuki. China requires foreign carmakers to form joint ventures with local partners, and allows carmakers to form more than one partnership. Peugeot said the deal would complement both partners’ existing ones in China “without direct competition”.

Dongfeng Citroën, its existing joint venture, makes mid-range models including Citroën’s C5, as well as Peugeot’s 408, 307 and 207 models.

In Europe, Peugeot is developing electric cars in partnership with Japan’s Mitsubishi Motors, and the car industry’s first plug-in diesel hybrid model. China’s government is promoting battery-powered cars in a bid to mitigate the demands on energy consumption as it oversees one of the biggest carbuilding booms in history.

Peugeot has trailed behind many competing carmakers in China, including Volkswagen and General Motors. China overtook the US as the world’s largest vehicle market last year.

Philippe Varin, the company’s chief executive, told investors in November that the company aimed to be among the top-selling carmakers in China, Russia and Latin America.

Peugeot sold 272,200 vehicles in China last year, claiming a 3.2 per cent share of the market.

In the first quarter of this year, the company reported a 3.1 per cent share of the market, and said registrations of its cars were 24.4 per cent higher than a year ago. Peugeot has just 170 dealers in China, and Citroën another 225.

Analysts said the French carmaker would struggle to build its business in a competitive market. “Their main concern is to gain market share in China, but it will be difficult,” said Pierre Bergeron, a credit analyst with Société Générale in Paris. “The product line is there, but the competition is tough, and will become tougher.”

Peugeot has a design studio based in Shanghai, which did some of the work on its 408 model and designed the Citroën Metropolis concept car that the carmaker is showing at the Shanghai Expo.

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