Sinotruk-MAN deal reflects a cautious move

While Chinese car makers are scouring the West to snap up troubled car brands, China's largest heavy truck maker, Sinotruk, is taking a more cautious route.

Sinotruk is selling a 25 percent stake to MAN SE of Germany, which, in turn, is supplying it with technology to build trucks aimed at emerging markets.

The upside of such an arrangement might be more limited than outright ownership of a Western brand.

After all, Sinotruk can only sell the truck in certain markets. But it looks less risky and a great deal easier to implement than buying abroad.

MAN is paying a premium for its stake, which will comprise shares in Sinotruk it is purchasing from its parent company and also a mandatory convertible bond.

Its minority stake only gives MAN a certain degree of control. It can appoint four of the 17 directors, including one executive director overseeing the project.

That Europe's third-largest truck maker is willing to transfer technology in return for a minority stake reflects the fact that it has been searching for a Chinese partner for almost 10 years.

The German group believes China might one day surpass Germany to become the main truck production base for the world.

It also needs a low-cost structure in China to better compete in markets such as Brazil and India, where prices are lower.

Awash with money it raised from its 2007 initial public offering (IPO), Sinotruk could, in theory, have gone shopping abroad for the technology and Western brand it needs.

It even earmarked some of the IPO proceeds for that purpose, but Sinotruk has only used a fraction of that amount.

The group apparently decided that it was not realistic to bid for the likes of Daimler and Volvo.

Analysts have said Chinese manufacturers do not have the expertise to manage global companies.

This deal offers Sinotruk certainty and speed in reaching the market with its MAN-based product.

It plans to launch new trucks utilizing German technology in the next two years to three years.

The deal should clear Chinese regulatory hurdles, according to Sinotruk's banker, JPMorgan.

The Communist party chief of Shandong Province, where Sinotruk is based, came to the signing ceremony.

Certainly, the Sinotruk-MAN deal fits China's strategy book of moving up the global manufacturing value chain, and the deal will help increase exports.

The deal limits Sinotruk's ability to sell in developed markets such as Germany or America, although it will take time to ensure its trucks can meet higher emissions standards in those markets, anyway.

While it is laudable to aim high and have global ambitions, maybe this new deal represents a more sensible model for Chinese auto companies to obtain Western technology.

The author is a Reuters columnist. The opinions expressed are her own.

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