The joint venture between Guangzhou Automobile Group and Honda Motor Co said the move will add 120,000 units to its capacity in Guangzhou.

According to Yao Yiming, executive vice-president of the joint venture, the company has existing factory buildings for expansion, so it will only need additional equipment and production lines.

Yao said the joint venture will complete the buildout by the second half of next year to produce 480,000 cars in 2012.

Unlike many carmakers that started expansion plans while at 70 percent to 80 percent of existing capacity, Guangqi Honda began moves to boost capacity only after it reached full output.

Due to its tight capacity, the company reported a growth of 19 percent last year to 365,600 vehicles, much lower than China's overall passenger vehicle market, which finished 2010 with a 53 percent rise.

Zhang Fangyou, president of Guangzhou Automobile Group, the Chinese partner of Guangqi Honda, said the joint venture adheres to the principle of prudence.

The cautious style is also reflected in the company's sales goal for this year - a mere 5 percent increase to 386,000 cars, while the overall market is widely expected to grow at least 10 percent.

In the first four months Guangqi Honda posted sales of nearly 135,000 vehicles, up 36 percent from a year earlier.

Yao said that the company might be able to sell 400,000 cars this year if demand remains robust, but its facilities and employees will have to work extra shifts.

He added that signs of weakening sales at dealerships began to emerge in the second quarter, although the first-quarter figure was encouraging.

New brand

The expansion is also part of preparations for Guangqi Honda's new brand Everus, according to Takanobo Ito, president and CEO of Honda.

Everus is the first independent brand by a Sino-foreign joint venture automaker especially designed for Chinese customers.

Takanobo said that Honda has great hopes for the new brand, which is expected to play an important role in the company's development in China.

Yao said the first mass-produced model to carry the Everus badge will be a subcompact car. It is scheduled to debut at the Guangzhou auto show later this year and might hit the market at the end of 2010.

Guangqi Honda introduced its new Crosstour crossover vehicle - the joint venture's highest-end model ever - at the Beijing auto show in April. It will be put into production in the last half of the year.

The company's existing locally made Honda models are the Accord, City, Fit and Odyssey.

Honda has another joint venture, with Dongfeng Motor Corp, which produces the CR-V, Civic and Spirior.

The partnership with Dongfeng began construction on a new plant in January with an initial output of 60,000 units a year when it starts operation in 2012. It is designed to eventually produce 240,000 cars a year.

Another Japanese automaker, Nissan Motor Co, is also expanding capacity in south China.

At the beginning of this month Nissan's passenger vehicle joint venture with Dongfeng began construction on a 240,000-unit plant in Guangzhou with total investment of 5 billion yuan. It is expected to start operation in 2012.

Toyota Motor Corp's joint venture with Guangzhou Automobile Group acted much earlier.

It completed a second production line in May last year, boosting its combined capacity to 360,000 units a year from the former 200,000.