Foreign auto producers are making fresh forays into China's fast-growing vehicle market, by creating and cementing alliances with local partners.

Toyota Motor Corp, Japan's biggest automaker, is negotiating with Guangzhou Automobile Group to form a joint venture in the city, capital of South China's Guangdong Province.

Toyota expects the joint venture could be established this month.

"We have reached a framework agreement with Toyota, and are waiting for the approval of the central government," said Zhang Fangyou, chairman of the Guangzhou auto firm.

Toyota sources confirmed the joint venture will manufacture the Camry sedan.

Guangzhou Automobile Group will be Toyota's second strategic Chinese partner. Toyota aims to control 10 per cent of China's overall auto market by 2010, and 20 per cent of the passenger car segment.

Toyota last year formed an alliance with First Automotive Works Corp (FAW), one of China's top three vehicle makers, to produce and sell 300,000 to 400,000 vehicles in China.

FAW is based in Changchun, capital of Northeast China's Jilin Province.

Toyota announced last week it will form a sport-utility vehicle (SUV) joint venture with FAW Fengyue Automobile Co Ltd, a newly launched affiliate of FAW.

FAW Fengyue will start technical licensing production of Toyota's Land Cruiser SUVs later this year. Initial annual capacity will be 10,000 units.

Toyota has said it will introduce the Corolla, Crown and Land Cruiser Prado into its existing joint ventures with FAW in North China's Tianjin Municipality and southwestern Sichuan Province.

The Japanese company began producing the Vios sedan, its first China-made passenger car, last October in the joint venture in Tianjin.

Honda Motor Co, Japan's second-biggest automaker, signed an agreement of intent last week with Dongfeng Motor Corp, a Chinese auto giant based in Central China's Hubei Province, to set up a joint venture in Wuhan, the provincial capital.

Honda and Dongfeng will each hold a 50-per-cent stake in the joint venture, said sources from the companies.

The joint venture will produce Honda's SUVs, including the CRV, the sources said.

Honda has an engine joint venture with Dongfeng in Guangzhou.

The companies formed a car joint venture earlier this year in the city with Guangzhou Automobile Group.

The three-party joint venture, in which Honda holds a 65-per-cent stake, will produce the Japanese company's small cars, which will be exclusively for exports.

Honda and the Guangzhou auto firm also operate a car joint venture, which began manufacturing the Accord sedans in 1997.

The joint venture also makes Honda's Odyssey multi-purpose vehicle. It will introduce the Fit compact sedan in September.

"The signs indicate foreign automakers hope to team up with more Chinese partners in different regions, especially China's top three State-backed auto companies, to facilitate their business expansions," said Yale Zhang, an analyst with Automotive Resources Asia Ltd, an industry consulting firm.

Shanghai Automotive Industry Corp (SAIC), one of China's three largest carmakers, has formed joint ventures with Germany's Volkswagen Group and US-based General Motors Corp (GM).

"More Sino-foreign joint ventures will be formed in the near term, with mergers and acquisitions between Chinese automakers," Zhang told China Business Weekly.

Both foreign and Chinese automakers want to find more than one partner for bargaining power.

Japanese automakers are latecomers to the Chinese market, in terms of local production, compared with their US and European rivals, such as Volkswagen, PSA Peugeot Citroen and GM.

Nissan Motor Co, Japan's No 3 automaker, launched the largest-ever Sino-foreign joint venture last month with Dongfeng to produce 550,000 vehicles by 2006.

The joint venture started to make Nissan's Sunny sedan last month in a plant in Guangzhou.

Volkswagen is speeding up investments in China to strengthen its co-operation with Chinese partners and to protect its leadership in the passenger car market.

The company announced last week it will invest 6 billion euros (US$6.7 billion) within the next five years to double by 2007 its annual production capacity to 1.6 million units.

The company also plans to introduce more new models in China. Volkswagen now runs two joint ventures in China - with FAW and SAIC.

"China is the only (major auto) market that is currently enjoying booming growth ... and it is only a matter of time before it overtakes Germany to become the third largest market in the world," said Bernd Pischetsrieder, chairman of Volkswagen's management board.

Statistics indicate China's vehicle output surged 34.13 per cent, year-on-year, to 2,076,660 units during the year's first half.

As a result, China surpassed France to become the world's fourth-biggest auto market.

China's output this year is expected to exceed 4 million units.

Passenger car output in the year's first half reached 895,500 units, up 103.53 per cent from a year earlier.

"We aim to continue to be the biggest player in China's auto market," Pischetsrieder said.

Volkswagen sold 324,000 cars in China during the period, up 52 per cent from a year earlier.

The company plans to sell more than 600,000 units in China this year.

"We will expand capacity at our two joint ventures ... and new (manufacturing) sites are also being examined," he said.

"However, we have no intention to find a third partner in China."

Volkswagen will introduce its commercial wagons and buses in China next year, he said.

The company produces the Santana, Santana 2000, Passat, Polo, Gol, Jetta, Bora, Audi A4 and A6 and Golf in China.

Other foreign automakers - including US-based Ford, BMW of Germany, German-US-based DaimlerChrysler and South Korea's Hyundai - have established joint ventures with Chinese partners.

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