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China’s second-largest auto group by sales, Dong Feng Motor, has signed an agreement to take a 70% stake in Swedish company T Engineering, its first overseas acquisition.

The takeover will boost Dongfeng’s research and development capacity and the company said it intends to acquire the remaining 30% within two years.

T Engineering will operate as the first overseas R&D operation for the state-owned Chinese automaker but will remain independent and undertake projects for other companies, a statement said.

Formerly a unit of Saab Powertrain, the company currently has 32 employees. It has recently been working on R&D for combustion engine controls, hybrid and electric cars, and control systems for transmissions and chassis.

Dongfeng said that the deal will make it “advanced internationally” in the area of electronic controls and the move will support the development of its own-brand vehicles.

Dongfeng is a major truck maker and has joint ventures with Nissan, Honda, Kia, PSA Peugeot Citroen and Taiwan’s Yulon Motor Taiwan to make passenger vehicles.

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By GlobalData

The company started making its own Fengshen brand cars three years ago and now has four models on sale – the S30 and A60 sedans, the H30 hatchback and the H30 Cross SUV. The company said it plans to roll out more new products from 2012 to 2016 and cover all passenger vehicle segments.

Dongfeng sold 3.06m vehicles last year, including 2.33m passenger vehicles, mostly built by its joint ventures. Its 2012 target is to deliver 3.3m vehicles.

Chinese companies are investing heavily in foreign technology expertise to help speed their own development. Zhejiang Geely Holding Group, the parent of Geely Automobile, bought Australia’s automatic transmission supplier Drivetrain Systems International in 2009.

In the same year, Beijing-based BAIC Group acquired the Saab 9-3 and 9-5 models and related engine technologies. The automaker also bought all equipment and core technologies of Swedish gearbox maker Weigl Transmission in 2011.

Dongfeng said it plans to expand overseas R&D beyond electronic controls to drivelines and car platforms, and attract more European talent in automotive technologies.

The company added that its R&D team had already started cooperation with T Engineering at the beginning of the year on three projects but declined to disclose the details.

Dongfeng also plans to start semi-knocked down kit assembly of light-duty trucks at the facilities of Russian vehicle producer ZIL next year according to the RBC daily, citing sources familiar with the situation. Initial output is planned at just 2,000 units.