Germany-United States auto giant DaimlerChrysler said yesterday it will begin assembling Mercedes-Benz sedans at its joint venture with Beijing Automotive Industry Holding Corp by the end of this year.

The first Mercedes-Benz E-Class sedan will roll off the production line in Beijing by the end of this year, said Trevor Hale, spokesman for DaimlerChrysler (China) Investment Co Ltd, in a statement to China Daily.

His remarks clear up recent doubt about the timetable for local production of Mercedes-Benz sedans created by later-than-expected approval from the government.

The joint venture Beijing-Benz DaimlerChrysler Automotive Co Ltd was granted final approval just days ago.

The 50-50 venture, which is part of a framework agreement worth 1 billion euros (US$1.2 billion) between DaimlerChrysler and Beijing Automotive, will have an annual production capacity of 25,000 Mercedes-Benz E and C-Class sedans.

"It's too early to know how many vehicles we will produce this year, and the point at which we reach the 25,000 capacity depends on market demand," Hale said.

Sales of Mercedes-Benz cars rose in China as imports grew by 18 per cent in the first five months of this year from a year earlier, he added.

Yale Zhang, a Shanghai-based analyst at US auto consultancy CSM Worldwide Corp, said: "Output of Mercedes-Benz sedans in China will be quite small in the early stages as their prices will not be competitive due to the government's policy."

According to China's new auto industry policy, foreign brand cars built domestically will have completed vehicle import tariffs imposed on them, if the value of imported kits used to make them account for 60 per cent or more of their value.

Tariffs on car imports stand at 30 per cent, with those on imported components at 15 per cent.

The car imports tariffs will decline to 25 per cent by the middle of next year in line with commitments to the WTO.

"Prices of Mercedes-Benz sedans made in China, as well as those of BMW, would decline in the medium and long-term with increasing local contents," Zhang said.

"However, it will be a hard job for Mercedes-Benz and BMW, as luxury brands, to enhance local contents of their vehicles built in China," he added.

BMW started to produce its 3 and 5 Series sedans in 2003 at its joint venture in northeastern China in partnership with Brilliance China Auto.

But BMW's sales on the mainland tumbled by 11 per cent year-on-year to 3,977 vehicles in the first quarter of this year.

China's luxury car market is mainly controlled by Audi, another German brand, which began local production in the 1990s.

Audi, which runs a joint venture in northeastern China with First Automotive Works Corp, sold 64,018 vehicles in China last year, up just 0.8 per cent from 2003.

Besides the Mercedes-Benz sedan project, DaimlerChrysler has agreed to form a joint venture with Foton, an affiliate of Beijing Automotive, to produce Mercedes-Benz heavy trucks.

DaimlerChrysler also plans to make 40,000 Mercedes-Benz vans annually in a venture in eastern China with Fujian Motor Industry Corp and China Motor Corp in Taiwan.

(China Daily June 17, 2005)