Shanghai Automotive Industry Corp (SAIC), one of China's largest automakers, is set to build a new production plant in Shanghai's suburban Nanhui District, top company officials said.

Projected to be able to generate an annual output value of 60 billion yuan (US$7.2 billion) when it is completed, the plant is expected to strengthen SAIC's position in the domestic auto industry.

The plant is expected to be built in a new complex which is part of Shanghai's strategy to create an industrial zone larger than 80 square kilometres. Plans are for a slew of equipment manufacturers to locate there.

That new industrial zone is in a new seaside town called Lingang New City. Construction there kicked off on Sunday.

Centred around manufacturing and logistics, the town is expected to be a key booster for the city's under-construction Yangshan Deep Water Port.

SAIC signed an agreement of intent on Sunday to build a strategic partnership with the newly-established Shanghai Lingang Economic Development (Group) Co Ltd (SLEDC), which oversees the port city's development progress.

"SAIC will take an active part in the new industrial zone's construction,'' SAIC President Hu Maoyuan told China Daily.

Hu did not elaborate on the specific amount invested or on the timetable for construction of the new production plant.

However, a source in the SLEDC said total investment in the project is about 10 billion yuan (US$1.2 billion).

Some 300,000 vehicles will be produced there every year.

Another official in SLEDC's construction department said final negotiations between the company and SLEDC may be completed in about a month.

SAIC has said it aims to raise its annual vehicle output from the current 610,000 units to over 1 million by 2007.

While most of SAIC's current production is the result of joint ventures, the company plans to produce 50,000 vehicles per year under its own name by then.

SAIC's most lucrative vehicles are produced in ventures with General Motors and Volkswagen. The company said it expects to boost production in those ventures to 580,000 by the end of the year. That is up from 410,000 in 2002.

Some industry watchers have linked SAIC's new production plant at Nanhui with an earlier announcement made by Volkswagen and its Chinese partners, including SAIC and Changchun-based First Automotive Works Corp (FAW).

Volkswagen and its partners will pump an extra 6 billion euros (US$7.2 billion) into China in the next five years. A little bit more than half will go to Shanghai Volkswagen (SVW), a 50-50 joint venture between SAIC and Volkswagen.

According to earlier reports, SVW signed an agreement with Volkswagen during Shanghai Mayor Han Zheng's visit to Germany in mid-November, regarding the introduction of a series of new car models.

SAIC's new plant may be able to handle the increased production for SVW, analysts said.

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