Swedish trucks and engineering giant Volvo yesterday said its construction equipment division had agreed to buy 70 per cent of Shandong Lingong Construction Machinery Co (Lingong).

The purchase of a stake in Lingong, one of China's major machinery manufacturers, is subject to regulatory approval, said a company statement.

"This is another important step in Volvo's growth strategy for China and Asia. I am convinced this co-operation will be very beneficial for both parties, from an industrial as well as from a commercial standpoint." said Leif Johansson, Volvo president and CEO.

Lingong, based in Linyi in Shandong Province, had a turnover of 2 billion yuan (US$250 million) in 2005, said the Volvo statement.

"The co-operation with Lingong is a significant step in our China vision and global strategy. It allows us to strengthen our position, serving customers with different offerings beyond our current premium products," said Tony Helsham, president and CEO of Volvo construction equipment.

"At the same time, the company will continue to develop and produce its Volvo wheel loaders at its facilities in Sweden, the US and Brazil," he said.

Lingong is the 4th largest producer of wheel loaders in China with around 11 per cent of the market in 2005. China is the world's largest market for wheel loaders.

The total market for 2005 was approximately 110,000 units, said the Volvo statement.

Experts say Lingong and its suppliers will play an important role in supporting Volvo's global production and sourcing.

With the rapid development of the Chinese construction industry, more and more foreign companies have taken an active role in the sector.

Last October US private equity firm Carlyle Group agreed to buy 85 per cent of Xugong for US$375 million.

The agreement would be the biggest-ever acquisition by a foreign investor of a controlling stake in a leading state-owned company in China.

Xugong is currently owned by Xuzhou Construction Machinery Group, which is wholly owned by the local government of Xuzhou.

Carlyle's bid is currently in the hands of the central government.

The takeover has raised concerns that China is selling off strategic companies to foreign investors too cheaply.

And the State Council has said key equipment makers should remain in domestic hands.
"Big and important equipment producers must seek the opinion of the relevant State Council departments if they want to sell stakes to foreign investors," said a statement from the council.

"China encourages restructuring of such companies, on the basis that the country has the controlling power," said the statement.