The deal comes despite rising diplomatic tensions between Beijing and Washington over a spy plane incident and American approval to sell advanced weapons to Taiwan. It is a sign that, on the trade front at least, it was business as usual.

Ford's agreement with Chongqing Changan Automobile Co, the listed arm of China's third largest car maker, will help the company challenge established ventures by General Motors and Volkswagen in a battle for what analysts expect to be a booming segment.

Ford and its China subsidiary will invest US$49 million in a 50 percent stake in the car venture, Changan Ford Automobile Co., Ford said. The other half would be held by Chongqing Changan and its parent Changan Automobile Group.

The joint venture is to be based in China's southwestern city of Chongqing and will develop and manufacture small family cars for the Chinese market.

"China is a big market. It easily outnumbers most of the markets in Asia, so we are not really concerned about competition," said Kenneth Hsu, spokesman for Ford Motors China.

"We are looking at the most popular or the fastest growing segment of the Chinese passenger car market "that is the family market and we are aiming at that segment," Hsu said.

He declined to give details of the car model, but said production was likely to begin in a year and the planned capacity was expected to reach 50,000 cars annually.

"The market will determine how many we can sell, and then we'll try of course to get it up to the maximum," Hsu said.

RACING INTO CHINA MARKET

Ford's Asia-Pacific President Vaughn Koshkarian said last September the company aimed to begin production at the plant by late 2002 or early 2003 and to eventually roll out 100,000 cars a year. Hsu said the figures were estimates current last year and declined to give any new target.

The world's number two auto maker is a relative newcomer to China's automobile market, unlike rivals GM or market leader Volkswagen, which have billion-dollar plants in the country. The German firm set up its Shanghai venture in the 1980s.

GM set up a US$1.5 billion joint venture with Shanghai Automotive Industry Corp in 1997 to make higher-end Buicks.

Foreign automakers have been racing to build affordable cars for the growing middle class in China, whose entry into World Trade Organisation is expected to ease limits on foreign joint ventures.

Analysts expect the family car segment to be at the forefront of a surge in automobile sales in the next few years, fuelled by rising urban incomes and government measures to boost consumption which include cuts in fees and backing for car loans.

China's passenger car market could reach about two million a year by 2005 from less than a million now, they said.

"The China market is a very promising one because the penetration rate is very low," said John Lu of ING Barings in Shanghai.

"The foreign car makers are anxious to get a foothold in the market to build up their brand name. In the car market, brand loyalty is very important," he said.

NEW MODELS

GM unveiled three compact car models in December and plans to sell 30,000 of its new line of Buick Sail cars this year.

Volkswagen, whose Shanghai joint venture has more than a third of the China market, intends to market a new model within the next two years.

Ford now has five component ventures in China and a 29.96 percent stake in Jiangling Motors, which makes the Transit van. Ford's investment in Jiangling is valued at about $95 million, a Jiangling official said.

Analysts said the new Ford venture, while smaller than its rivals, was significant.

"The absolute amount of investment is not that key. For example, the GM joint venture is a US$1.5 billion investment, but it includes an engine manufacturing plant and assembly lines," Lu said.

At present, Sino-US business is continuing despite growing diplomatic troubles between the two countries since an April 1 collision between a Chinese fighter and a US spy plane sparked an 11-day standoff that ended after the release of the spy plane's 24 crew.

The United States announced on Tuesday it was ready to sell to Taiwan, or help the island to buy, sophisticated arms including four Kidd-class destroyers, eight diesel submarines and a dozen P-3 submarine hunter planes.

That sale has further infuriated the Chinese government, which considers Taiwan a renegade province.

Ford shares closed US$29.67, down US$0.39, in New York on Tuesday. Chongqing Changan's B shares, open to foreign investors, ended at HK$4.75, down HK$0.26, on Wednesday, in line with a general decline in the market.

(China Daily 04/25/2001)