China's fourth-largest automaker, Chang'an Automobile Group, said on Monday that its joint venture with Europe's second-largest automaker, PSA Peugeot Citroen, was approved by the National Development and Reform Commission.

The development signals the start of operations for the venture, agreed on last July in Paris.

The venture will have registered capital of 4 billion yuan (US$618 million) and an initial investment of 8.4 billion yuan.

Analysts said that the new venture will greatly improve PSA's competitiveness against its international rivals in China, the world's largest auto market.

According to an e-mailed statement from Chang'an, the 50-50 venture will produce environmentally friendly light-duty commercial vehicles and passenger cars at its factory in Shenzhen, Guangdong province. The initial annual capacity will be 200,000 vehicles and 200,000 engines.

The first vehicle is scheduled to come off the production line in the second half of 2012.

The vehicles will bear the Peugeot, Citroen and Chang'an brands, as well as a new domestic brand created by the venture. The venture will also develop new energy vehicles.

The venture will also introduce Citroen's high-end model DS series into the Chinese market, part of an effort to upgrade the French automaker's brand image.

Analysts said that the venture will help Peugeot-Citroen achieve its goal of selling 2 million vehicles in China annually and taking 10 percent of the market by 2020, a target announced last year by Peugeot's China Chief Executive Officer Claude Vajsman.

Vajsman also said that the company will launch at least one new model under the Peugeot and Citroen brands every year to take market share from international rivals like General Motors Co and Volkswagen AG. PSA currently holds about 3.5 percent of China's passenger car market.

"It will be a positive step for Chang'an to improve its competitiveness among China's top automakers as it is quickly strengthening its position through a series of acquisitions and restructurings in the last few years," said Jia Xinguang, an independent auto analyst based in Beijing.

However, he said that Peugeot-Citroen should pay close attention to balancing its partnerships with Chang'an and Dongfeng Automobile Co Ltd.

Peugeot-Citroen established a joint venture with Dongfeng, China's third-largest automaker, in 1992.

Chang'an has a three-way tie up with Ford Motor Co and Mazda Motor Corp, which aims to sell more than 2.6 million vehicles annually by 2012.

It also has a joint venture with Japanese automaker Suzuki.