Geely Automobile, the No 1 privately-owned car maker in the Chinese mainland, yesterday said it plans to jointly invest 1.44 billion Hong Kong dollars (US$185.2 million) with the Hong Kong Productivity Council to develop a high-end car and components.

The 3.0-litre car, named GH1, will be produced in Hong Kong within the next 24 months, said Li Shufu, chairman of Hong Kong-listed Geely.

The plans come one month after Geely and Hong Kong Productivity Council - a government-sponsored organization aiming to promote productivity throughout Hong Kong business sectors - signed a memorandum of understanding for collaboration in the development of the first Hong Kong-made car and components.

Component producers from Hong Kong, who mainly invest in the mainland, will also participate in the development of the car, the two sides said in a statement. The car will target both the mainland and overseas markets.

"We could benefit from the CEPA (Closer Economic Partnership Arrangement) advantages, even though labour and land costs are higher in Hong Kong than on the mainland," said Yeung Kwok Keung, executive director of Hong Kong Productivity Council.

The CEPA was implemented last year to facilitate Hong Kong's exports to, and investment in the mainland.

Hong Kong-made cars will be exempted tariffs in the mainland if more than 30 percent of their total costs, including that of development, come from Hong Kong, Yeung said.

"The car market in the mainland is booming, and we will have big opportunities," he said.

China is the world's third largest and fastest-growing vehicle market.

Sales of Chinese made vehicles reached 2.79 million units in the first half of this year, up 9.25 percent from a year ago.

The nation's total auto demand is predicted to rise 12 percent to over 5.6 million units this year.

Citing Nanjing Automobile Group's takeover of British collapsed car maker MG Rover last week, Li said: "The world's vehicle manufacturing is shifting towards China which enjoys relatively lower labour and land costs than the developed countries."

All of the world's major automakers have set up joint ventures in China with local partners.

Geely, one of a few independent Chinese car manufacturers, aims to sell 140,000 cars this year, up from 100,000 units last year, according to Li. In the first half of this year, the company's sales grew by 6.3 percent to 60,000 units from the same period of last year.

Geely, previously a motorcycle and real estate conglomerate, started to make cars in 1998.

It is producing low-cost cars in east China's Zhejiang Province and Shanghai.

The company also expects to double its exports to 10,000 cars this year from last year.

In May, Geely clinched a deal with a Malaysian partner to assemble its cars in this Southeast Asian country.

Geely closed at 0.485 Hong Kong dollars (6.24 US cents) per share yesterday, up 1.04 percent.

(China Daily July 27, 2005)