Qingdao Doublestar Co and Continental AG, the world's fourth largest automobile tyre maker, plan to form a joint venture (JV) in the future.

Continental, based in Hannover, Germany, will start negotiations on financial and other venture details, Doublestar said in a statement to the Shenzhen stock exchange, China Daily reported Wednesday.

Doublestar believes the marriage will be a win-win deal for both companies.

"The JV's products will generate remarkable economic returns and will become competitive internationally," said the company.

Continental AG, with 27 companies outside Germany, produces more than 100 million tyres annually, Doublestar said in the statement.

Analysts say the JV plan will help Doublestar sharpen its competitive edge to withstand increasingly fierce rivalry in the local market, and will be conducive to promoting its products in the global market.

The company, once a shoe maker, has become a diversified manufacturer of tyres, castings, machinery and embroidery.

Tyre making has become the company's mainstay business in terms of revenues, according to Doublestar's half-year report.

The company's tyre output increased 36 per cent year-on-year to 1.54 million from January to June, bringing in revenue of 745 million yuan (US$90 million).

But the gross profit rate dropped by about 2 percentage points due to the rising prices of raw materials such as rubber, plastics and steel, the company said.

Doublestar also said it has felt the pinch resulting from accelerated competition.

"Since China joined the World Trade Organization, the company's products have been increasingly squeezed by their domestic peers," it said. "The pressure will continue to grow as international giants, who are technologically developed and rich in funds, enter the Chinese market."

The JV plan also marks the latest attempt for overseas auto tyre makers to cash in on the lucrative Chinese market, where passenger car sales surged 76 per cent last year to 1.97 million units.

"The fast-growing auto market will certainly buoy the demand of all kinds of auto components including tyres," said Jia Xinguang, chief analyst with the China Automotive Industry Consulting and Development Corporation.

Source: China Daily