That means Toyota Motor Company will replace Daihatsu Motor Company, a member of the Toyota Group, as the partner of Tianjin Xiali Automotive Co Ltd, a Chinese firm.

Tianjin Xiali has manufactured the Xiali, or the Daihatsu-developed 1.0-litre Charade-brand economy car, with licensed technologies from Daihatsu for about a decade.

With Toyota's support, more people are wondering if the ties between Toyota Motor Company and Tianjin Xiali will develop into an equity joint venture.

Toyota's chairman, Hiroshi Okuda, vowed in Beijing that Toyota will do its utmost for the Chinese market on the basis of a joint venture with Tianjin Xiali.

The US$200-million joint venture was officially launched last week in Tianjin, a port city where Toyota has a strong existence in auto and auto parts development and manufacturing.

Toyota will invest US$100 million in the 50-50 joint venture. Analysts said it is understandable that Tianjin Xiali's dependence on Toyota for technology is increasing and that the ties between them are developing to such an extent that Tianjin Xiali could merge into the joint venture wholly or partially.

The manufacturing scale at Tianjin Xiali, at 120,000 cars a year, is significant compared to the joint venture's designed production capability, 30,000 cars a year.

The logic of a possible merger is firmly based. A yearly capacity of 150,000 cars is the minimum for economies of scale in China for an auto maker. The models to replace the Xiali and those to be manufactured by the joint venture will be based on the same platforms as Toyota's Vitz and Platz, Toyota's global strategic cars in the 21st century.

The joint venture will begin producing these cars in 2002. The joint venture, approved by the Chinese Government at the end of May, is the first step by the Japanese car maker to open the Chinese market in real terms, according to Okuda.

Toyota, which the Chinese Government once rejected when it requested to invest in the country in the 1980's, has lagged behind other global auto makers in entering the fast-growing Chinese market.

"It is too early to say what the specific prices of our cars manufactured in China will be, but they are targeted for Chinese families," Okuda said.

Global auto makers are cognizant of the "enormous potential" for economical cars for use by Chinese families.

"We will soon witness fierce struggles for the economical car segment on the Chinese market among global auto makers," Okuda said.

In addition to Toyota, other Western car giants, including Volkswagen, General Motors and Ford, also plan to manufacture economical cars in China.

(China Daily)