It was revealed on Saturday that Japan's Honda Motor Co holds almost two thirds in the three-party small car-manufacturing project in South China's Guangdong Province, an arrangement which has been approved by the Chinese Government.

Honda's two Chinese partners - Guangzhou Automobile Group and Dongfeng Motor Corp - respectively hold a 25 and 10 percent stake in the project, said a statement issued by the Guangzhou auto firm.

The project, with a total investment of 1.61 billion yuan (US$194 million), is the first Sino-foreign joint venture with a foreign company holding a stake of over 50 percent.

The statement said the joint venture will initially produce 50,000 1.0 to 1.5-litre engine cars a year. All of the vehicles will be for export and mainly targeted at the European and Asian market.

Analysts see the project as a strong sign that the central government will further relax its control on the equity structure of Sino-foreign auto joint ventures.

However, Jia Xinguang with the China National Automotive Industry Research Institute said the government is unlikely to allow other foreign automakers to control a stake of more than 50 percent in their joint ventures in China, unless all of the vehicles produced are exported, as is the case with the Honda project.

The government will continue to use the equity structure control to protect Chinese manufacturers following the nation's entry into the World Trade Organization and lowering of tariffs on auto imports, according to Jia.

"It is clear that the government has given the green light to the Honda project, because its export-orientated cars will not directly compete with those made in China," Jia told China Daily yesterday.

The statement reported that the Honda JV project will begin production during the second half of 2004. It will make full use of the spare parts supply network of Guangzhou Honda, Honda's 50-50 joint venture with Guangzhou Automobile Group, to cut costs.

A Honda official earlier said that the cars produced will use 60-80 percent of the same type of spare parts as will be used in a small model to be introduced by Guangzhou Honda next year.

Currently, Guangzhou Honda, which was established in 1998, produces the Accord sedans and Odyssey multi-purpose vehicles sold in China.

(China Daily November 25, 2002)