According to the agreement, Embraer will establish a joint venture with Harbin Aircraft Industry (Group) Co., Ltd. and Hafei Aviation Industry Co., Ltd. -- two companies under AVIC II -- in Harbin, capital of northeast China's Heilongjiang Province.

The newly formed company, called Harbin Embraer Aircraft Industry Co., Ltd., involves an equity investment of US$25 million.

But the two sides did not specify the stake each will hold in the new company.

The joint venture will be responsible for manufacturing, assembly, sales and after-sale support for the ERJ135/140/145 family of aircraft, said Xu Zhanbin, vice-president of AVIC II.

"The new company is capable of producing 24 ERJ regional jets a year," Xu said. He added: "The first jet is expected to come off the production line before the end of next year."

Zhang Yanzhong, president of AVIC II, said: "To cooperatively develop commercial regional jets will definitely bring win-win results to AVIC II and Embraer."

Mauricio Botelho, president and CEO of Embraer, said the event represents a landmark not just in the history of Embraer, but also in the history of the bilateral relations between the two countries.

"China and Brazil have an enormous potential for cooperation in different fields of interest, and we are confident that this is but the first step towards many successful projects in the future," Botelho said.

"We firmly believe that Harbin Embraer Aircraft Industry Company will be a powerful lever to expand the presence of our products in this flourishing Chinese market which, for sure, will represent an important share of Embraer's global operations," he said.

Experts noted that the current reform and consolidation of the Chinese airline industry will lay a solid foundation for the rationalization of airline networks.

They believe the central government's decision to develop the western part of the country, and the success of Beijing's bid to host the 2008 Olympics will open opportunities for the regional aviation market.

The General Administration of Civil Aviation of China predicts that China is expected to require some 110 to 140 regional jets -- those that are 50- to 110-seat aircraft and with a range of 600 kilometers (373 miles) and 1,200 kilometers (746 miles) -- during the 10th Five-Year Plan period (2001-05).

Transport by regional jets is set to become a new growth area of the country's civil aviation industry, the administration said.

The State Commission of Science, Technology and Industry for National Defense, the regulator of the aircraft manufacturing industry, said China will give top priority to the research and development of regional aircraft in the coming decades.

The State has already announced plans to create preferential conditions for the use of regional airlines, the commission said.

A number of airports are to be upgraded and around 36 new ones, suitable for smaller aero planes, will be built within the next five years.

(China Daily December 3, 2002)