Toyota Motor Corp has agreed to joint with FAW, China's largest car company.
Under optimistic forecast the Toyota-FAW joint venture will be able to produce 400,000 cars a year by 2010.
Toyota will invest $1.27bn in the venture, and FAW will acquire a controlling stake in Tianjin Automotive Xiali.
The Toyota-FAW venture plans to manufacture luxury saloons, mini cars and sports utility vehicles. The production is to start in mid-2003 at FAW's factory in Tianjin with a target of 100,000 mini cars annually.
The SUVs will be made in Changchun, FAW's heartland in the north-eastern province of Jilin, and will also start in mid-2003 with an initial target of between 10,000 and 20,000 cars a year.
Medium and large luxury saloons will enter production in perhaps 2005 in Tianjin, with a 50,000 annual target.FAW also plans to buy 50.98 per cent of the compact-car maker Tianjin Automotive Xiali in a deal worth $172m.
This factory, which has a 50-50 venture with Toyota, plans to start making mid-range cars in October with an annual capacity of 30,000 units.