Toyota teams with FAW to make cars in China

TOKYO, Japan (Reuters) -- Toyota Motor Corp and China's biggest automaker, First Automotive Works, said on Thursday they had signed a deal to collaborate on production of luxury sedans, minivehicles and sports-utility vehicles in China.

Toyota and FAW said they would aim for production of 300,000 to 400,000 vehicles a year by 2010 for sale in the fast-growing Chinese vehicle market.

"Both companies view this new dimension to their relationship as helping them establish a steadfast position in the Chinese automobile market through the production of numerous models of high-quality automobiles that meet the needs of their customers," the automakers said in a statement.

The announcement had been expected. Japanese media had reported that Toyota would sign an agreement with FAW to provide the technology used in the Japanese firm's Crown luxury model to produce a successor to FAW's Red Flag sedan. The Red Flag, the first Chinese car to be fully made at home and once the limousine of choice for Communist Party leaders, is produced by FAW's listed subsidiary, FAW Car .

Making 30,000 cars a year

Toyota already had plans to manufacture about 30,000 compact cars per year in China with a unit of Tianjin Automotive Industry Corp, which merged with FAW in June, starting in October.

China's auto market has been growing rapidly in recent years, but competition has heated up since the country joined the World Trade Organisation in December and cut import tariffs by 40 to 50 percent.

Chinese automakers have been speeding up alliance talks with domestic and foreign firms to fend off the tougher competition. And while analysts have cautioned that foreign carmakers may still find the going tough in the Chinese market, many seem to willing to settle for low initial sales in hopes of a bigger payoff down the road.

Shares in Toyota ended down 2.84 percent at 2,910 yen, as the strengthening yen knocked exporters, while the key Nikkei average ended down 1.5 percent.