Toyota's rivals are established in China

Japanese carmaker Toyota has joined with Guangzhou Automobile Group to manufacture its Camry saloon car in the southern Chinese city of Guangzhou.

The $461m (￡259m) venture will start producing cars in 2006, Toyota said.

Toyota is a relative latecomer to China, where Honda, General Motors and Volkswagen have been present for years.

There are now fears of over capacity, especially as Beijing recently tightened credit in the hope of stopping the economy from overheating.

Car sales only rose slightly in July from June, after a three-month decline.

"The short-term concern is that the market is no longer thundering along as it was. A couple of years ago, it grew by 70%," Graeme Maxton, head of the car industry consultancy Autopolis, told the BBC.

"Everyone is slightly concerned about how much is pouring in. There's now a total of $13bn being invested [by foreign car companies] which will raise capacity massively."

Mr Maxton also said the Chinese government does not want the sector dominated by foreign companies.

"At some point those conflicting forces - the Chinese government on one side and the foreign companies on the other - are going to come into some sort of battle."

However, the car industry is still expected to see up to 20% growth this year and China remains the world's fourth largest market for vehicle sales.

"The China market is very big. We are looking for the long term," Kosuke Shiramizu, executive vice president of Toyota, told correspondents.

He said the Japanese firm would also consider entering the car loan market.

Guangzhou Auto is China's fourth-largest automaker and the parent company of Hong Kong-listed Denway Motors.

Toyota's 50-50 joint venture with the firm is part of a $13bn strategy which aims to triple its capacity in China by the end of the decade.

Prosperous Guangzhou has seen an influx of Japanese car and parts makers.

Nissan Motor recently opened a plant in suburban Guangzhou with a Chinese partner.

(Agencies)

saloon car: （豪華轎車）