The long-awaited three-party project is jointly constructed by Honda, the Guangzhou Automobile Group and the Dongfeng Automobile Group.

Honda accounts for 65 per cent of the total investment of more than 1.61 billion yuan (US$193 million). The Guang-zhou Automobile Group has a 25 per cent stake, while the Dongfeng Automobile Group has 10 per cent.

Vehicle production will start by the end of next year.

In the first phase, the project is expected to have an annual production capacity of 50,000 economical cars, eventually rising to more than 240,000 cars a year.

Under Chinese policies and regulations, foreign investors can invest as much as 50 per cent in whole-vehicle production companies in China.

The project was exceptional because all cars produced by the venture will be for export, analysts said.

Its target markets will be Japan, Europe and Southeast Asia.

"The project will have little impact on the domestic market", said Zeng Qinghong, executive deputy general manager of the Guangzhou Honda Automobile - a 50-50 joint venture between Honda and the Guangzhou Automobile Industrial Group.

To help reduce production costs, the new production facility will use the same engines and more than 60 per cent of the parts that are already being used by the Guangzhou Honda Automobile.

Guangzhou Honda will be able to produce more than 120,000 cars next year and 200,000 cars in 2005.

The Guangzhou municipal government said it expects the new Honda project to further fortify Guangzhou's status as one of China's major vehicle production and sales bases.

The municipal government is negotiating with the German car maker Mercedes-Benz to establish another vehicle production facility in the southern metropolis.

Guangzhou plans to achieve an annual production rate of more than 500,000 vehicles in 2005 and more than 800,000 in 2013.

The city's automobile production is expected to account for 20 per cent of Guangzhou's total industrial output value by 2005, compared with only 6.1 per cent last year.

Guangzhou's automobile industrial output value is expected to exceed 100 billion yuan (US$12 billion) in 2005.

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