BEIJING Automotive Industry Holdings Co yesterday signed a deal in Guangzhou to acquire financially ailing smaller car maker Baolong Auto.

Founded in 2000, privately owned Baolong which produces light commercial vehicles and sport-utility vehicles, has been losing money and suspended output over the past few years.

The buyout of Baolong will help BAIC, as Beijing Automotive is known, expand its own-brand footprint into south China, according to industry observers.

On completion of the acquisition, BAIC will invest 5 billion yuan (US$736 million) to turn Baolong's idle production capacity into a facility with an annual output of 300,000 units, making its self-branded cars, especially SUVs.

BAIC, the nation's fifth-largest auto maker, has been actively pursuing industrial mergers and acquisitions since last year to expand its presence and increase capacity.

The Chinese partner of Daimler AG and Hyundai Motor Corp last year paid US$220 million to buy technologies from General Motors' Saab unit in its quest to roll out self-branded models.

BAIC plans to produce 550,000 self-branded passenger cars annually by 2015 with sales over 400,000 units. It is also building production bases in Zhuzhou of the central Hunan Province as well as Lanzhou in Gansu Province.

Earlier media reports said the purchase of Baolong also paved the way for BAIC to float its passenger car assets but this was later denied by Baolong's major shareholder.

BAIC President Wang Dazhong earlier said the car maker is eying an initial public offering involving its passenger car assets in the joint ventures with Daimler and Hyundai.