Iveco, the commercial vehicle unit of Italian industrial group Fiat SpA, clinched a deal with two Chinese partners on Friday to produce heavy-duty trucks and engines in the world's third biggest auto market.

Under the deal, Iveco will set up a 50-50 truck investment joint venture with Shanghai Automotive Industry Corp (SAIC), one of China's top automakers.

If the joint venture is approved by Chinese regulators, Iveco will acquire a 67 per cent stake of Hongyan Automotive Co Ltd, a heavy-duty truck maker in Southwest China's Chongqing Municipality, said a statement from SAIC.

Following the acquisition, Iveco and SAIC plan to increase Hongyan's annual output from the current 15,000 to 40,000 heavy-duty trucks by 2008, using technologies from the Italian firm.

Iveco, SAIC and Hongyan will also build a truck engine plant in Chongqing with a planned capacity of 30,000 units annually by 2008.

"We expect the agreement will enable us to create a solid base for the supply of products and services at competitive costs in the Chinese market," said Paolo Monferino, Iveco's global managing director.

Iveco now runs a light truck joint venture in East China's Jiangsu Province with Nanjing Automobile Group. The venture has an annual output of nearly 20,000 units.

Sales of made-in-China trucks grew by 4 per cent year-on-year to 1.06 million units during the first 11 months of this year, according to industry statistics.

The deal with Iveco and Hongyan will give SAIC a presence in the truck business.

In the passenger vehicle business in China, SAIC has formed partnerships with German's Volkswagen and General Motors of the United States.

SAIC sold 807,200 vehicles from January to November this year, second only to China's No 1 automaker First Automotive Works Corp.

Source: China Daily