Air China yesterday received approval to set up an airline in Dalian City fueling competition among domestic air giants to tie in with local governments to tap regional markets, China's civil aviation regulator said.

Air China, the country's flagship international carrier, will invest 800 million yuan (US$123.7 million) for an 80 percent stake in the Dalian airline. The Dalian government will hold the remainder of the airliner after investing 200 million yuan via its state-owned asset management arm, the Civil Aviation Administration of China said on its website yesterday.

The new carrier will boost Air China's presence in northeastern China by operating flights mainly from Dalian, situated in Liaoning Province, to other coastal cities, provincial capitals, Japan and South Korea.

Competitor China Southern Airlines already has a branch in Dalian and has allocated 19 airplanes to secure a market share of 40 percent in the city.

Initially the Dalian government was in discussions with HNA Group, parent of Hainan Airlines, about setting up an airline in the city, but it finally chose Air China as their partner.

Last week, the civil aviation regulator said China Eastern Airlines passed initial review to set up a joint venture in Yunnan Province. The carrier will invest 2.38 billion yuan to hold a 65 percent stake in the joint venture.