China may veto Hummer deal on green concerns

The little Chinese company that plans to buy Hummer, the maker of hulking off-road vehicles which is currently owned by General Motors, was last night trying to shore up confidence in its ability to do the deal, after a state-owned radio station in China said regulators planned to block it.

Sichuan Tengzhong Heavy Industrial Machinery Corp emerged as the surprise bidder for Hummer after GM went into bankruptcy earlier this month, but Hummer's reputation for building gas-guzzlers conflicts with China's environmental goals, according to a report on China National Radio.

The country's National Development and Reform Commission (NDRC) is also concerned that Tengzhong lacks expertise in car production, the report said, but the company dismissed the story as speculative. Insiders at the company believe that negotiations with regulators are progressing well, that the Chinese government has not taken a view, and that it will assuage any environmental concerns by promising that future generations of Hummers will be significantly greener.

Earlier, when sceptics questioned its ability to run a carmaker, Tengzhong said it intended to keep Hummer's executive team in their jobs.

The company's officials said yesterday: "We do not yet have a definitive agreement, but are developing proposals with GM and Hummer. We will continue to engage with the appropriate authorities in an appropriate manner."

China has a complicated and fragmented system to regulate overseas investments. Many government bodies, including the NDRC, the Ministry of Commerce and the State Administration of Foreign Exchange are involved. The Ministry of Commerce has sounded a more positive note about the deal, saying that the bid is normal behaviour for a company seeking to take advantage of the global downturn.

The financial terms of the tentative deal have not been disclosed, but analysts had hoped that Hummer could fetch $100m for GM. Its sale is an important part of its bankruptcy plan to slim down its portfolio of brands and emerge as a leaner, profitable company.

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