France's PSA opens new plant in China

French auto giant PSA Peugeot Citroen on Wednesday opened its fifth plant in China to embrace a boom in sport-utility vehicles (SUVs), as it tries to stem sharp sales falls in the world's largest car market.

PSA and its Chinese partner Dongfeng Motors -- the country's second-biggest automaker and also a shareholder in the French company -- unveiled the new factory in Chengdu in the southwestern province of Sichuan.

The factory, to be run by the two firms' joint venture DPCA, will produce multi-purpose vehicles and sport-utility vehicles of Peugeot, Citroen and Dongfeng's own brand Fengshen. It will have a capacity of 300,000 vehicles a year.

But PSA -- which almost went to the wall two years ago -- is struggling in China, where its sales plunged nearly 20 percent in the first half of this year to around 295,000 units.

Its market share fell to 3.9 percent last year, down from 4.32 percent in 2014.

The slump is being blamed on its focus on sedans, with Chinese consumers now preferring bigger models such as sport-utility vehicles.

"Our commitment to China is strong and historic and will remain so," PSA CEO Carlos Tavares said in Chengdu.

The Chengdu plant is expected to help boost sales by expanding PSA's offerings to cash in on the boom in SUVs. Their sales surged nearly 45 percent year-on-year in the January-July period, according to latest figures from the China Association of Automobile Manufacturers.

"This is an advanced plant... and a solid step for the development of DPCA to the western provinces of China," said Dongfeng's president Zhu Yanfeng.

The car market in China's less developed west is not as saturated as in metropolises in the east. 

The four billion yuan ($600 million) factory covers an area of 1.65 square kilometres and will employ up to 2,000 people.

PSA already has three plants with Dongfeng in Wuhan, in the central province of Hubei, which can produce a total of up to 750,000 cars a year.

It also has a factory in Shenzhen, which borders Hong Kong, with another local partner China Changan.

The French company aims to increase sales in China and Southeast Asia to one million cars by 2018. 

China's car sales increased at their slowest rate in three years in 2015, but growth has been rebounding in recent months as the economy showed signs of stabilisation. There have also been government incentives to boost demand for cars, including a cut in purchase tax.