National carmaker Proton hopes to set up a production plant in China later this year in a fresh bid to tap the world's largest consumer market and boost flagging exports, its top official said today.

Proton and its Chinese partner have submitted new proposals on the plant to the government following stricter rules for foreign investors under China's new automobile industry development policy, chief executive Mahaleel Ariff said.

"Our partner has promised that it will get the licence this year and start production," Mahaleel told the national Bernama news agency.

He did not name the Chinese company but officials previously said Proton was partnering Goldstar Heavy Industrial Co and has plans to set up operations in Humen City in southern Guangdong province.

On the range of cars to be produced in China, Mahaleel said it was likely to be Proton's latest sporty model, the GEN-2, and the replacement for its existing small Tiara cars due to be rolled out later this year.

Proton is still studying how best to optimise its proposed lower cost operations in China, including plans to produce cars for the global left-hand drive market, he added.

Licence requirement

Mahaleel said Proton's efforts to enter China had been delayed because of difficulties faced by its Chinese partner in converting its licence from that of a component maker to a car producer.

China, which is the world's fourth largest vehicle market and aims to become a major global automobile producer by 2010, now requires foreign investors to set up full-fledged car making facilities, he said.

"You have to invest two billion renminbi (US$242 million). You also have to make car bodies, meaning that you have to invest in stamping (facilities). You must have engine production, meaning you need to have engine casting," he said.

"Then they (the Chinese government) also say you must create a research centre before you can have the (production) licence. So now, we have been asked to re-evaluate our proposals. In fact, we just finished our board meeting and we have re-submitted our proposals."

Despite the tougher conditions, Mahaleel said a new provision also now allowed Proton the option of entering China with two partners instead of one, which could lessen its financial burden. He gave no indication if Proton would seek another partner.

Proton used to sell six out of every 10 new cars in Malaysia but growing foreign competition is eating into its market share which fell to 44 percent last year from 48 percent in 2003.

In its bid to penetrate China, Proton could get some help from Germany's Volkswagen AG, the current market leader in China, following their strategic alliance late last year.

Their tie-up did not involve any equity sale but the two companies have said it could lead to technology sharing and joint development of cars.