Through the deal, Huaxiang will become an OEM supplier to globally famed car makers such as PSA.

"Except for Wanxiang, the amount of deals is still very small and limited," said Ken Duck, attorney at Foley & Lardner LLP.

"However, given the situation of US auto makers, many Chinese auto suppliers and auto makers are studying the market and doing some due diligence."

But the path to consolidation is fraught with problems. Many M&A deals are finally dropped because it may hurt the interests of related governments in areas such as tax income.

Some companies are also hit with financial bottlenecks while fund-raising channels are narrowed, according to Teng Bole, official from China Association of Automobile Manufacturers.

(Shanghai Daily June 11, 2008)