By Ben Klayman
(Reuters) - General Motors Co
GM, SAIC Motor Corp <600104.SS> and Wuling Motors Holdings Ltd <0305.HK> said they will begin construction of the plant early next year, pending government approvals. The 6.6 billion Chinese yuan ($1.06 billion) first phase is scheduled to start in 2015.
The plant in southwestern China will have annual production capacity of 400,000 vehicles, but the partners did not disclose what vehicles will be built there. It also will have the capacity to build 400,000 engines annually, a GM spokesman said.
"It's a numbers game," J.D. Power and Associates senior vice president John Humphrey said. "They're doing a phenomenal job, the market continues to grow, vehicle penetration is still so low, GDP per capita continues to increase and the west of China is where a lot of the action is going to come going forward.
"Having production further in the western part to get a foothold there and penetrate the tier two and three and four cities makes perfect sense for them," he added.
The new plant is part of SAIC-GM-Wuling's push to reach a production target of 2 million vehicles per year by the end of 2015. GM invests $1 billion annually in China.
Chongqing, one of China's largest cities, is home to a plant operated by Ford Motor Co
GM, whose Chinese joint venture began building vehicles in 1999, had a leading 14 percent of China's market of 18.5 million vehicles last year - just ahead of Volkswagen AG
Earlier this month, GM and its Chinese partners opened a plant in the southern city of Liuzhou for its low-cost Baojun brand. That plant will also eventually have an annual production capacity of 400,000 vehicles.
GM has said it expects vehicle sales in China to hit as many as 20 million this year, and Chief Executive Dan Akerson previously predicted annual industry sales in China will hit 30 million vehicles by the end of the decade.
In addition to the Baojun brand, GM's portfolio in China includes Buick, Chevrolet, Cadillac, Opel, Wuling and Jiefang.
In September, GM opened a large vehicle test track west of Shanghai. GM and its partners invested $252 million to build what officials called the country's largest proving ground.
In addition to Liuzhou, the joint venture currently operates a plant in Qingdao. GM and SAIC, through a different joint venture, also have a plant in Shanghai, and several more in northeast China.
($1=6.2223 Chinese yuan)
(Reporting by Ben Klayman in Detroit; Editing by Gerald E. McCormick, Jeffrey Benkoe and Peter Galloway)