Beijing government backs BAIC's bid for overseas assets

The Beijing municipal government will fully support a bid by Beijing Automotive Industry Holding Corp (BAIC) for Ford Motor's Volvo car unit if the Chinese automaker fails in its current quest for General Motors' Opel, sources said on Wednesday.

In a move that surprised some of its domestic peers, Beijing Auto, a second-tier player in China, submitted its final bid for GM's Opel and Vauxhall brand recently.

A consortium led by Magna International Inc and Belgian investment group RHJ International have also submitted their bids for the GM Europe operation, and the U.S. automaker aims to finalize a sale by the end of the third quarter.

Given the two stronger rival bids and its own limited international exposure, few really believed that Beijing Auto had any chance to win, a source close to the Chinese company told Reuters.

Still, it might not deter it from a possible bid for Ford's Volvo car brand as it has the full backing of the Beijing city government which wants a stronger auto industry, said the source.

Spokesmen from the Chinese automaker and the Beijing government both declined to comment.

China, which overtook the United States as the world's largest auto market, has been relying heavily on its auto industry to boost the economy, which is targeted to grow by 8 percent this year.

A sharp slowdown of auto sales in the country last year amid a global downturn has spurred the central government to come up with a series of stimulus policies, including rebates and aggressive cuts in sales tax for small cars.

At the local level, many auto groups, have also set up ambitious growth targets aided by heavy state subsidies especially in clean energy vehicle development.

Beijing Auto, controlled by the Beijing government, aims to more than double its annual vehicle sales to 2 million units by the end of 2015 from merely 771,639 units in 2008.

But the automaker, ranked fifth in China, does not even have its own car brand. Its four-year old Mercedes-Benz car venture with Daimler AG broke even last year and its tie-up with Hyundai Motor Co has a long way to go before catching up with top players in the market such as Volkswagen AG。

Beijing Auto really does not have many choices. It has to resort to acquisitions to get there. But the government is on its side and it is also counting on a stronger auto industry to bolster local GDP, said a second source with knowledge of the situation.

Beijing Auto and Geely Automobile Holdings Ltd are interested in Ford's Volvo car units, sources had said. Both automakers declined comment due to the sensitivity of the issue.

(Reporting by Fang Yan and Jacqueline Wong)