Honda Motor Co., Japan's third- largest automaker, opened a new factory in China, as it seeks to maintain its lead over Toyota Motor Corp. and Nissan Motor Co. in the world's fastest growing major vehicle market.

The new factory, located in the southeastern city of Guangzhou, will have a capacity of 120,000 vehicles a year, the company said in a statement. Guangzhou Honda Automobile Co., Honda's venture with Guangzhou Automobile Group Co., invested 2.2 billion yuan ($277 million) in the factory, which will make Accord models.

Honda, the first Japanese carmaker to set up a venture in China, is opening the plant after capacity shortages stunted its sales growth in the first half. The factory may enable Honda to maintain its lead over Toyota and Nissan, which are also investing in the world's third-largest vehicle market.

``Demand in China will continue to grow so Honda will likely add more capacity,' said Norihito Kanai, a senior research analyst at Meiji Dresdner Asset Management Co. which manages $2.5 billion in equities in Tokyo. ``If Honda can't supply enough cars, customers will go elsewhere.'

Honda's Lead

Honda set up its first venture in China in 1998, five years ahead of Toyota and Nissan. The company had about 5.7 percent of China's passenger car sales in the first half, compared with Toyota's 4.5 percent and Nissan's 4.1 percent, according to the China Association of Automobile Manufacturers. Market leader Volkswagen AG had a share of 17.1 percent, the carmaker said.

Guangzhou is the only city in the world where Japan's three biggest automakers have vehicle assembly factories, according to Koji Endo, a senior analyst at Credit Suisse in Tokyo.

Honda sold 143,519 vehicles in the first six months of the year, less than half its full-year target of 350,000 units, because of capacity shortages, it said in July. The company's sales were 22 percent higher than a year earlier.

The new factory will give Guangzhou Honda a total capacity of 360,000 units a year.

Toyota expects its sales in China to rise 52 percent this year from last year to 278,000 units, Executive Vice President Yoshimi Inaba said in July. The world's biggest automaker by market value has invested 215 billion yen ($1.8 billion) in China and it is aiming to boost its annual output to 690,000 units. Its current capacity is 343,000 vehicles a year.

Accord's Popularity

Guangzhou Honda will operate the new plant. The venture, China's seventh-biggest carmaker in the first eight months, produces Accord sedans, Fit compacts, City compacts and Odyssey minivans. Its Accord sedan was China's seventh best-selling model in the first eight months of the year.

Dongfeng Honda Automobile Co., Honda's other China venture, quadrupled its production capacity in February to 120,000 units, with a total investment of 2.8 billion yuan ($352 million). The venture will be able to produce 70,000 Civics a year, while the rest will be CR-V models, Executive Vice President Liu Yuhe, said in March.

Nissan, the last of Japan's three biggest carmakers to enter China, expects its sales to surpass 300,000 next year, 50 percent more than this year, it said last month.

Dongfeng Motor Co., the company's venture with Dongfeng Motor Group, makes Bluebird and Teana sedans, along with Tiida compacts. Nissan will also start selling Infiniti luxury vehicle in China next year.

Honda shares rose as much as 1 percent to 3,890 yen in Tokyo as of 9:22 a.m., while Toyota shares gained as much as 1.1 percent to 6,320 yen. Nissan shares fell as much as 1.6 percent to 1,307 yen.

Honda, Toyota, Nissan and other Japanese carmakers overtook Volkswagen and other European automakers in combined market share in China last year, Fitch Ratings Ltd. said in May. Japanese automakers had about 27 percent of Chinese sales, while European companies' share fell to about 22 percent, Fitch said.

European automakers, which had more than half of China's vehicle market in 2002, may regain some share as PSA Peugeot Citroen and Volkswagen introduce new models, Fitch said. They are unlikely to regain their lead, the company added.