Deutz Ag and FAW Jiefang Automotive Co., which is based in Changchun, China, a wholly owned subsidiary of China First Automobile Works Group Corp., last week signed a contract to set up a joint venture to manufacture and sell diesel engines. Deutz and FAW will each own a 50-percent stake in the joint venture, which will operate under the name of Deutz (Dalian) Engine Co. Deutz will assume industrial leadership of the company and will invest the equivalent of €60 million (about U.S. $79.3 million) in the new company. The joint venture will be based in Dalian, a port city in the northeast of China with more than 5.5 million inhabitants. The contract is still subject to the usual approvals for transactions of this nature.

The establishment of Deutz Dalian will considerably expand the cooperation that has already existed for more than 10 years between Deutz and FAW Group. FAW will contribute its new cutting-edge plant that manufactures licensed Deutz engines to the joint venture. Its initial annual capacity in 2007 will be 50,000 engines, which could eventually increase to 100,000 engines annually. It will manufacture 4- to 7-L engines that meet current emission standards. The engines will be used in commercial vehicles and in industrial applications such as construction equipment and agricultural machinery. They will mainly be sold to international Deutz customers in Asia and to the FAW Group.

According to Deutz, this investment is a step toward its growth and internationalization strategy. The cooperation with FAW will also strengthen Deutz ' position in the global commercial-vehicle segment. At the same time, Deutz Dalian will benefit from the expertise of Deutz AG in the industrial-engines market. After Cologne, the new site at Dalian will be Deutz' largest production facility, and the synergies from the production sites will improve the Deutz Group's cost base.

China First Automobile Works Group Corp. is the largest supplier in the Chinese commercial-vehicle market. It produces light, medium-sized and heavy trucks as well as buses. It also specialises in making cars.

Deutz generates annual sales of around €1.3 billion (about U.S. $1.7 billion) and is one of the world's leading independent manufacturers of diesel and gas engines, which are used in construction equipment, power-generation, agricultural machinery, commercial vehicles, rail vehicles and ships.