The possible 20 billion yuan Chery facility was revealed in an Erdos city government investment document. Shao Chang

China's top homegrown carmaker Chery Automobile Co might invest a staggering 20 billion yuan to build a new plant in the Inner Mongolia autonomous region, Guangzhou Daily reported recently.

The report said the new Chery facility in Erdos was listed in a city investment promotion document.

Chery spokesman Jin Yibo confirmed to Guangzhou Daily that the two sides have been in talks, but refused to reveal details.

Based on the reported large investment, analysts estimate the Erdos plant could have an annual capacity of about 500,000 units.

The Anhui-based carmaker just began construction a month ago on a new 10 billion yuan production facility in Wuhu city that is scheduled for completion by 2012.

The company also started building a 200,000-unit plant in the coastal city of Dalian last year that will be put into operation in the middle of 2011.

With an existing annual production capacity of 650,000 units, Chery will be able to produce more than 1 million vehicles annually in two years.

The company is also reported to have plans to build a plant in Kaifeng in central China's Henan province with an annual production of 300,000 vehicles, mostly microbuses and light-duty trucks.

If both the Kaifeng and Erdos projects come to fruition, Chery will eventually reach an annual capacity of 1.8 million vehicles.

The company also plans to establish a tie-up with China's biggest container manufacturer - China International Marine Container (Group) Ltd - to build trucks. The venture's first vehicle will roll off the line at the end of this year, Jin said in a previous interview with China Daily.

As the No 1 homegrown carmaker, Chery is now known for its frequent and aggressive moves.

Sales by Chery hit 500,000 units last year, up 40.5 percent over 2008. Its goal this year is to ensure sales of 700,000 vehicles and reach 900,000 units, according to Jin.

BYD, backed by Warren Buffett and a major rival of Chery, set a sales goal of 800,000 units this year after moving more than 400,000 vehicles in 2009.

Yet why Chery would choose Erdos remains unclear, analysts said. The city currently lacks a mature auto parts industry and is located far from major consumer markets.

A local official in charge of soliciting investment told Guangzhou Daily that Chery could raise funds in Erdos if it lacks money.

Huatai Automobile Group, an Erdos-based domestic carmaker that began to build an auto plant in the city in 2006, reportedly received more than 1 billion yuan in loans from the local branch of China Development Bank.

The official told Guangzhou Daily that the local government planned to hold further talks with Chery after the Spring Festival.

It is reported that the electricity for industrial use in Erdos is cheaper than elsewhere, which could be part of its attraction.

Widely known for its abundant coal reserves, Erdos could use Chery's project as an opportunity to augment natural resource production with manufacturing that brings higher added value and a longer industrial chain.

The city now has several other auto projects already underway.

Zhejiang-based Jinggong Group is building a heavy-duty truck plant in Erdos. A factory by the city's own Zhongxing Special Vehicle Manufacturing Co has been completed, while Huatai Automobile Group has already began to commercially produce engines and gearboxes as well as two SUV models in Erdos.

(China Daily 02/22/2010 page14)