Japanese mini car manufacturer Daihatsu Motor Co said yesterday that it would start to assemble vehicles in China next year under its brand with a local partner.

Under a technical licensing deal with First Automotive Works (FAW), China's biggest automaker, the first Daihatsu model, a multi-purpose vehicle, will roll off the production line at a FAW plant in northeast China's Jilin Province.

Katsuyuki Kamio, executive vice-president of Daihatsu, which is 51 percent owned by Toyota Motor Corp, said he expects to see an annual output of 30,000 vehicles in China.

The firm's line-up for the Chinese market will be equipped with 1.0-to-1.5-litre engines, Kamio said.

"In the future, we will possibly set up a joint venture (with FAW) to make Daihatsu vehicles," he said.

Daihatsu is apparently eager to cash in on China's booming small car market, where fellow Japanese mini car manufacturer Suzuki Motor and many local brands are selling well.

"Demand for small cars will continue to grow rapidly in China as a result of favourable policies and surging fuel prices. For Daihatsu, this is a big opportunity," he said.

In the first 10 months of this year, sales of China-made vehicles with an engine capacity between 1.0 and 1.6 litres rose more than 50 percent year-on-year to 1.87 million units, according to data from the China Association of Automobile Manufacturers.

China cut consumption taxes for cars with an engine capacity between 1 and 1.5 litres from 5 to 3 percent on April 1 to encourage people to buy smaller vehicles. The central government has been also urging local authorities to lift all restrictions on such vehicles.

Kamio said that 70 percent of the parts used to make Daihatsu vehicles in China would be purchased locally, although the engines will be imported from Japan.

In April, the Japanese carmaker established a US$30 million joint venture with FAW, also in Jilin Province, to produce auto bodies to supply its vehicles to be assembled in China.

Locally made Daihatsu vehicles will be marketed by FAW's existing networks.

Daihatsu has had links with Chinese firms for over two decades.

Tianjin Automotive Industry Corp, which was taken over by FAW in 2002, began to make the Xiali subcompact car and Huali minibus in the mid-1980s with technology purchased from Daihatsu.

The Xiali is now best-selling model in China, but production of the Huali stopped several years ago.

In 2003, another FAW affiliate in Tianjin started to produce the Dario mini sports utility vehicle under a technical licensing deal with Daihatsu.

However, production of the Dario was halted earlier this year due to sluggish sales.

Daihatsu executives said its China plan is an important part of Toyota's ambitious goal to control 10 percent of China's vehicle market by 2010.

The world's second-biggest carmaker, Toyota now has a market share of less than 4 percent in China. It runs a number of joint ventures with FAW and Guangzhou Automobile Corp.

China's total annual vehicle sales are predicted to rise to 10 million units a year at the end of this decade from the 7 million units expected this year.

(China Daily November 24, 2006)