The Chinese central government, which in the 1980s rejected Toyota's bid to invest in China, yesterday gave its approval for the Japanese car maker to launch an automobile production joint venture in Tianjin in North China.
In a long-awaited move into the Chinese market, Japan's largest car maker will work with Tianjin Xiali Automotive Co Ltd (Tianjin Xiali) to establish a 50-50 joint venture with a total investment of US$100 million.
The venture, Toyota's debut into China's auto sector, was approved by the Ministry of Foreign Trade and Economic Co-operation and it will start operation after being registered in the State Administration of Industry and Commerce.
The joint venture will begin producing Toyota-brand compact cars in 2002, using the same platform as Vitz and Platz, Toyota's global strategic cars, Toyota officials said.
Annual production capacity of the joint venture is approximately 30,000 units, they said.
The auto maker's entry into the Chinese market comes as the country is on the verge of entering the World Trade Organization (WTO).
"We will do our utmost to sharpen the joint venture's competitive edge even if there are tariff cuts," Toyota officials said in a statement.
According to the landmark Sino-US agreement on China's WTO accession signed six months ago, the country will cut its tariffs on auto imports from 80 to 100 per cent level to 25 per cent by mid-2006.
The joint venture will produce compact cars for the Chinese market. Compact cars are expected to be very popular for the Chinese consumers because they are affordable.
"It is hard to say what will be the price of the compact cars as it is closely related to parts prices and production localization rates," said Toyota Managing Director Koji Hasegawa.
"But it is not impossible for us to produce a compact car at a price of around 100,000 yuan (US$12,048), based on the current prices of Chinese-made parts and Toyota's technology level," Hasegawa said.
The Chinese Government requires all auto joint ventures to use no less than 40 per cent of domestically made parts.
Engaging in globally produced compact cars is an increasingly popular strategy among the world's auto makers seeking to develop lower-cost models that can be sold worldwide, especially in emerging markets like China.
Foreign auto makers, including South Korea's KIA and Italy's Fiat, have already started producing compact cars in China.
Toyota officials said the Chinese Government also approved a plan for Toyota to provide technical support to Tianjin Xiali to help the firm produce a redesigned Xiali model.
Tianjin Xiali plans to manufacture the redesigned Xiali, to be based on the Platz and Vitz models, next year.
Total production of the redesigned Xiali and older models is estimated at 120,000 units per year.
Toyota, following Suzuki Motor Corp and Honda Motor Corp, will be the third Japanese auto maker to form a joint venture in China to produce passenger cars.