Avis Rent A Car System Inc., the world's second-largest general-use car-rental company, signed an agreement with Shanghai Angel Car Rental Co. to set up a 50-50 auto-leasing joint venture yesterday.

The sluggish global auto industry and the economic slump in the United States have forced Avis to branch out into emerging market such as China, industry officials say.

The Shanghai venture, which is the company's first foothold in China, is expected to bolster Avis' expansion in the Asia-Pacific market, said company officials.

Shanghai Angel, a subsidiary of Shanghai Automotive Industry Group, is the city's largest auto-rental company, with a network spanning more than 20 locations nationwide.

As part of its development strategy, Shanghai Angel said it aims to learn advanced management and marketing techniques from its U.S. partner to upgrade its operations.

Meanwhile, Avis' global rival, Hertz Rent A Car Corp., the world's largest car-rental company, has also been trying to enter the promising Chinese market.

Hertz on Tuesday announced the appointment of China National Auto Anhua Car Rental Co. Ltd. as its international licensee for China.

Hertz and China National Automotive Industry Corp. signed an authorized franchise agreement in 2000, but the licensee didn't begin operations until late last year, said Zhang Yicun, general manager of the newly launched car-rental company.

The company has begun to provide rental services in Beijing and will kick off its operation in Shanghai and Guangzhou soon, said Zhang.

However, as the cooperation is confined to brand dealerships and lacks a closer link forged by strong capital input, Hertz's expansion in China will be limited to some extent, said industry observers.

As the Chinese government allows foreign investors into the auto service sector, the country's huge market potential will present a greater temptation for foreign car-rental companies, industry observers said.

But foreign investors may be challenged by the high investment risks in the domestic rental market due to China's undeveloped credit rating system and unfavorable transportation management environment, they noted.

Most domestic car-rental companies are quite small compared with their overseas counterparts, said Hong Jiankang, general manager of Shanghai Zhenlang Trans-portation Equipment Leasing Co. Ltd.

Currently, about 3,000 domestic car-rental companies own only 40,000 cars, while Hertz alone has 520,000 cars worldwide.

The expansion of foreign companies should propel development of the domestic car-rental industry, said Hong, noting that local companies need to provide better service to match foreign competition.

(eastday.com February 2, 2002)