Cummins, the world's biggest diesel engine maker, said on Friday it has clinched a deal with Chinese truck producer Beiqi Foton Motor to create an engine joint venture in Beijing.

The two sides plan to invest a total of 2.5 billion yuan (US$316 million) in the 50/50 joint venture, which has registered capital of 1 billion yuan (US$126 million), Cummins said.

The venture, which will start to make Cummins 2.8 and 3.8-litre diesel engines in 2008, will have an annual production capacity of 40,000 engines, according to the US engine group.

The project is part of Cummins' plan to increase its investment in China by US$300 million by 2010 in order to boost local sales.

China is now the group's second-largest market after the United States.

The venture will make engines for light-duty trucks, multi-purpose and sport utility vehicles, and small construction equipment, all of which will meet the Euro IV emission standard, Cummins said.

"These new products represent Cummins' latest efforts to expand its presence in the important China market where we have enjoyed considerable success over the years," said Cummins President and Chief Executive Officer Joe Loughrey.

Cummins announced last October that it aimed to increase its China sales to US$3 billion by 2010 from last year's figure of more than US$1 billion. The group's global sales stood at almost US$10 billion in 2005.

With the engine venture in Beijing, Cummins will have 10 manufacturing sites in China.

The company runs another joint venture with Dongfeng Motor, China's third-largest auto group, which makes medium-duty diesel engines in Central China's Hubei Province. The venture's annual capacity will grow to 200,000 units by 2010 from last year's 130,000.

Cummins said on Friday that some of the engines produced by the Beijing joint venture will be sold overseas.

Cummins' new partner Beiqi Foton, a unit of the fifth-biggest Chinese vehicle group Beijing Automotive Industry Corp, have been the long-time leader of the nation's light-duty truck market.

Beiqi Foton sold a total of more than 310,000 vehicles last year, including 260,000 light-duty trucks. It also makes heavy-duty trucks and buses under its own brand, and is working with German-US automaker DaimlarChrysler to form a joint venture in Beijing to assemble Mercedes trucks.

Beiqi Foton officials said earlier this year that it planned to enter the passenger car sector next year. It aims to sell 1 million vehicles a year by 2010, with one-fifth being sold overseas.

Cummins predicted that, driven by strong market demand, production of light-duty trucks in China would grow by 8 per cent a year in the foreseeable future.

According to industry data, total vehicle production in China surged 25.74 per cent year-on-year to 5.28 million units in the first three quarters of this year.

Meanwhile, truck output climbed 9.53 per cent to 960,400 units.

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