A Renault vehicle is displayed at the Frankfurt auto show in September. Photo: IC

Dongfeng Motor Group Co Ltd and French automaker Renault have received permission from the Chinese government to establish a joint venture, Dongfeng announced Thursday, with a planned annual output of 150,000 cars.

Dongfeng and Renault will set up Dongfeng Renault Automotive Co Ltd in Wuhan, capital of Central China's Hubei Province, with registered capital of 4.706 billion yuan ($772.73 million), according to an announcement by Dongfeng on the Hong Kong Stock Exchange.

Dongfeng will own 55 percent of the joint venture and Renault the remaining 45 percent, the announcement said, noting the shareholding ratio will become 50-50 when the joint venture gets a trading certificate.

Dongfeng and Renault signed a memorandum of understanding on March 30, 2012, expecting to build long-term cooperation in the Chinese market, the announcement said.

In order to implement the memorandum, Dongfeng bought 55 percent of the shares of Sanjiang Renault Automotive Co Ltd, and changed its registered name to Dongfeng Renault, in preparation for the joint venture.

Sanjiang Renault is a joint venture set up by China Sanjiang Space Group and Renault in 1993, which stopped production in 2004 due to serious financial deficits, according to media reports.

Dongfeng and Renault submitted an application for setting up a joint venture to the National Development and Reform Commission in November 2012, which got approved Monday, Dongfeng said in the announcement.

Cooperation with Renault will improve Dongfeng's competitiveness, brand value and technology level, Dongfeng announced.

Certainly it is good for Dongfeng to cooperate with such a famous automaker, Su Hui, a senior expert in China Automobile Dealers Association, told the Global Times Thursday.

However, Dongfeng cooperates with companies with different styles, such as Honda and Nissan, which might prevent Dongfeng from developing an outstanding feature, said Su.

Faced with sluggish economies in Europe, Renault has to fight to gain a place in the rapidly developing Chinese market, Zhang Zhiyong, an independent auto industry expert, told the Global Times on Thursday.

Compared with other European carmakers such as Volkswagen which entered China early, Renault is less well-known and only has a small market share in China, Zhang said.

Renault is an influential brand in Europe, but its current performance in China is lower than expected, Su said.

In the Chinese market, Renault is at the same level as PSA Peugeot Citroen, Zhang said, noting French cars still do not have a strong foothold in China.

Chinese customers prefer Japanese cars, but unlike Japanese automakers, European companies have less risk of being impacted by [international] political incidents, Zhang said.

Media reports said that the joint plant will initially produce a Renault SUV model called Koleos.

A SUV will be a good choice for the new joint venture as in China, the SUV market growth is much greater than other kinds of cars, Zhang said.

In the first 10 months of 2013, the sales of SUVs in the Chinese market increased 47.92 percent year-on-year, while the sedan sales rose 11.37 percent year-on-year, according to data from the China Association of Automobile Manufacturers.

Renault sold 16,900 Koleos in the first three quarters in China this year, up 3.9 percent compared with the same period last year - much lower than the growth in the overall SUV sector in China.

Feng Shiming, an executive director of Shanghai-based Menutor Consulting, told the Global Times Thursday that Renault is too dependent on the Koleos, which makes up 85 percent of its Chinese sales this year. Feng also noted that with the increasing competition in the local SUV market, Renault's reliance on a single product could be risky.