SHANGHAI (Reuters) – Ford Motor and its China venture partners, Mazda Motor Corp and Chongqing Changan Automobile Co, are seeking Chinese government approval to end their three-way tie up, two sources said on Thursday.

Deals  |  China

Ford and Mazda both plan to set up their own separate joint ventures with Changan, a move which will give the automakers more leeway to design their own China strategies, the sources with direct knowledge of the scheme told Reuters.

Ford is set to own half of its new two-way venture with Changan, the sources said, while the Mazda-Changan tie-up will probably also be a 50-50 JV.

“They have submitted a joint proposal to the Chinese government to split up the partnership. Ford’s new JV with Changan will be based in Chongqing, while Mazda’s venture will be based in Nanjing,” said one of the sources, adding that it was unclear when the government was expected to make a decision.

Ford and Changan declined to comment on the issue. A Mazda China spokeswoman had told Reuters the parties were awaiting regulatory approval for a restructuring move, but declined to give further details.

Auto industry partnerships have been in focus recently, with Renault, Nissan and Daimler announcing a stake swap deal in the wake of an equity tie between Suzuki Motors and Volkswagen AG.

Mazda’s ties with Ford have weakened since the U.S. automaker reduced its controlling one-third stake in Mazda to 13 percent in 2008 to free up cash. Ford currently owns about 11 percent of Mazda, Japan’s No.5 automaker.

Ford, which broke ground for its $490 million third China plant in September last year, owns a 35 percent stake in the venture, with Changan holding 50 percent.

BENEFICIARY

A pullout of Mazda could actually be positive for the Japanese automaker, which has just a 15 percent stake in the venture, analysts said.

“It’s a good move as a three-way tie could get complicated sometimes. The biggest beneficiary, however, would be Mazda as it could be an equal partner in the new tie,” said Chen Liang, an analyst with Huatai Securities.

China, which eclipsed the United States as the world’s top auto market last year, has been a major bright spot amid a global industry downturn and a safe heaven for foreign auto giants.

Car sales rose 63.6 percent to 4.63 million units in the first four months, with annual growth estimated to rise between 15 to 20 percent.

Mazda started making the Mazda 6 in China in March 2003 through a technical cooperation pact with FAW Group, China’s No. 2 automaker.

It joined Ford’s car making venture with Changan three years later, which now makes Mazda 2 and Mazda 3 compact cars as well as Ford’s Focus, Fiesta, Mondeo, S-MAX, Volvo S40 and S80 models.

The termination of the Changan-Ford-Mazda partnership is unrelated to Ford’s plans to sell its Volvo car unit to China’s Zhejiang Geely Holding Group Co, parent of Geely Automobile Holdings Ltd, one of sources said.

Ford signed a $1.8 billion deal to sell the Swedish premier car brand to Geely in late March and is expected to close the sale in the second quarter.

(Editing by Jacqueline Wong)

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MADRID (Reuters) – China should let its yuan currency appreciate to help ease imbalances in the global economy, European Economic and Monetary Affairs Commissioner Olli Rehn said on Saturday.

China

The yuan, or renminbi, is pegged to the U.S. dollar and European policymakers generally believe it is undervalued, giving China a trade advantage and creating savings and trade imbalances across the globe.

“We are of the opinion that it would be important that China would consider reforms in this respect so that we could see a certain rebalancing in the value of the renminbi,” Rehn told reporters after a meeting of EU finance ministers.

“It would be very important for the global economy and also for the Chinese economy. It is one of the issues that is very strongly on the global agenda — it is a matter of agreeing at first at the G20 and we are in the process of doing this.”

In notes prepared for EU delegations for a meeting of finance ministers and central bankers from the Group of 20 countries in Washington on April 23, the EU calls for more yuan appreciation.

“China will have to remove obstacles to stronger domestic consumption: this may include a more extensive social safety net, measures to reduce corporate retained profits, and financial market and supervisory reforms. This should also be accompanied by an effective real appreciation of the renminbi,” the document on the common EU position said.

(Reporting by Jan Strupczewski, editing by Dale Hudson)

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BEIJING (Reuters) – Factories in China and India cranked up production in March and Japanese business morale rose to its highest in more than a year on signs of improving global demand, boosting hopes for a sustainable economic recovery.

China  |  Japan

Similar manufacturing surveys later on Thursday were expected to show activity in the United States, Europe and the UK also picked up from February, suggesting gradual improvement in those economies despite worries about high unemployment and massive government debt.

China’s official purchasing managers’ index (PMI) rose to 55.1 in March from 52.0 in February, beating expectations and pointing to brisk first-quarter GDP growth that could spur further policy tightening by the central bank.

Sub-indexes for output, new orders, new export orders, imports and job creation all rose strongly, as did input prices, highlighting mounting inflationary pressures as the economy surges and companies look to pass on rising costs to consumers.

The headline PMI from a parallel HSBC/Markit survey rose to 57.0, the third-highest level in the six-year history of the survey, from 55.8 in February. A reading above 50 means activity is expanding.

“Another substantially high headline manufacturing PMI reading, combined with strong growth of exports, points to an acceleration in industrial production and likely over 11 percent GDP growth in the first quarter,” Qu Hongbin, chief economist for China at HSBC, said in a statement on Thursday.

“With inflation pressures rapidly accumulating, this increases the risk of interest rate hikes in the coming months.”

Investors are keen to see more evidence that the global recovery is gaining momentum to justify the optimism that has pushed U.S. and Japanese stocks to 18-month highs.

Strong demand from China, the world’s third-largest economy, is proving a boon for its neighbors as Asia’s major Western export markets have been far slower to recover.

South Korea reported March exports rose 35.1 percent from a year earlier, beating an expected 32.9 percent rise.

“Taking into account that our main trading partners are China and other emerging markets and those markets are still flourishing, we can expect a positive outlook for the first half of the year,” said Kim Jae-Eun, an economist at Hyundai Securities in Seoul.

Japan has also seen a steady export recovery, driven largely by sales to China, which has helped offset persistently weak domestic demand that is hobbling the economy.

The Bank of Japan’s “tankan” survey on Thursday showed morale among the country’s big manufacturers, the biggest beneficiaries of the export rise, improved to its best level since the failure of Lehman Brothers shocked financial markets in September 2008.

Large manufacturers expect export sales to grow 4.5 percent in 2010/11, compared with an expected 18.3 percent decline in the fiscal year which ended on Wednesday, though they remain cautious about boosting wages or spending on new plants and equipment.

Japanese manufacturing activity slowed slightly in March, but a rise in export orders to the highest in almost six years suggested production will grow.

India’s factories were also busier last month, though growth slowed from a 20-month high in February as companies faced mounting cost pressures.

RISKS TO RECOVERY

Many government and investors, however, continue to worry that demand could sputter out, especially as the economic boost from massive government stimulus spending during the global crisis begins to wane.

A move to higher interest rates later this year to curb inflation could also check growth, while raising borrowing costs for consumers and companies. Australia, India and Malaysia have already started hiking rates and China is likely not far behind.

While South Korea’s year-on-year export numbers appear impressive, investment bank ING said monthly export growth may have moderated from February, highlighting concerns in Asia that the global recovery may be slower and more uneven than expected.

Data on Wednesday showed U.S. private employers unexpectedly cut 23,000 jobs in March, dampening hopes for a strong rebound just days ahead of a more closely watched payrolls report.

Worries about layoffs have made U.S. consumers more cautious about spending on local and imported goods, though recent reports had shown consumer confidence was recovering.

Chinese government economist Zhang Liqun said time would tell whether the improvement in global demand could be sustained.

“From the demand side, the strong recovery in exports might not be sustainable and actual investment growth is slowing. So the outlook for growth in demand and orders is still not clear.”

(Additional reporting by Langi Chiang and Alan Wheatley in Beijing, Yoo Choonsik in Seoul and Stanley White in Tokyo; Writing by Kim Coghill; Editing by Kazunori Takada)

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CANBERRA/BEIJING (Reuters) – China warned Australia not to make “irresponsible” comments about the trial of four employees of mining firm Rio Tinto after Canberra said the trial had left questions about China’s legal system.

World  |  China

The verbal sparring over the conviction of Australian citizen Stern Hu and three colleagues underlined foreign investors’ concerns about legal transparency in China and the potential for conflict between the top trading partners.

“In holding part of the trial in secret, China, I believe, has missed an opportunity to demonstrate to the world at large transparency that would be consistent with its emerging global role,” Australian Prime Minister Kevin Rudd told reporters in Melbourne.

But Rudd, keen to draw a line under the squabble with its top export partner, said disagreement over the trial would not hit the booming resource trade between the two countries.

A Shanghai court convicted the four Rio Tinto men of taking bribes and stealing commercial secrets, handing out sentences on Monday ranging between 7 and 14 years in prison.

“We express serious concern about the Australian statements on the Rio Tinto case. The Rio case is a criminal case, and the Chinese side has already given its verdict,” Chinese Foreign Ministry spokesman Qin Gang said.

“Australia should respect this outcome and stop making irresponsible comments.”

China has not yet announced the verdict in the case of two Chinese steel executives, who were tried in secret last week for leaking information about iron ore negotiations to Rio Tinto.

Rio immediately sacked its four employees, who had pleaded guilty to taking kickbacks. All but one contested separate charges heard in closed court of stealing commercial secrets, and one of the Chinese defendants has already decided to appeal.

“We understand how deeply distressing these events are for the families of those convicted and we are sympathetic. However, we have had no choice but to terminate the employment of those convicted and associated support for the families,” a Rio Tinto spokesperson said.

China is Australia’s biggest export market with two-way trade worth $53 billion in 2008. Major exports to China include iron ore, wool, copper ore and manganese. Resource-hungry Chinese firms have been behind several tie-ups with Australian firms.

CHAMBER SEEKS ANSWERS

The influential Australian Chamber of Commerce and Industry, which covers 85 percent of the country’s mining and energy companies, said it was seeking urgent talks with Chinese authorities to get clarity in the wake of the Rio trials.

“These broader issues are important to the Australia-China economic relationship, and the necessary confidence Australian business executives require when doing business abroad,” said Nathan Backhouse, manager of trade and international affairs.

Chamber members include Rio Tinto, Fortescue Metals, Newcrest Mining and Woodside Petroleum, who helped reshape the trade relationship with China.

Australian firms with large China businesses, including BHP Billiton have been anxious to distance themselves as far as possible from Rio’s troubles.

Asked whether China is satisfied that Rio Tinto had nothing to do with its employees’ misdeeds, Qin said that “all foreign companies” that do business in China must respect its laws and regulations.

“In the Rio case, whoever is implicated, irrespective of their nationality, will be handled according to the law.”

Australia’s Assistant Treasurer Nick Sherry said he believed Rio was a good corporate citizen and told CNBC the case raised no “broader issues” for the miner.

But the Greens party, which wields swing votes in the upper house of parliament, sought an investigation into the firm by the Australian Securities and Investments Commission, similar to one already launched by Britain’s corporate watchdog.

An ASIC spokesman said the regulator was “following developments to see if anything was of interest” but said no investigation had yet been launched.

(Additional reporting by Victoria Thieberger and Sonali Paul in MELBOURNE, and Chris Buckley and Lucy Hornby in BEIJING; Editing by Ken Wills and Sanjeev Miglani)

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