The new plant would lift the automaker’s Chinese engine production by about 40% and is part of a move to catch foreign automakers such as Germany's Volkswagen AG in manufacturing automobiles in China.

An engine production unit is to be established by Guangzhou Honda Automobile Co., which is Honda's 50-50 joint venture with Chinese automaker Guangzhou Automobile Group Co. This new firm is to manufacture eco-friendly and fuel-efficient 1.3- and 2.4-liter gasoline engines for such models as the Accord, Odyssey and Fit using the latest equipment.

Honda manufactured 350,000 automobiles in China in 2006, up 37% from 2005, and expects to produce 450,000 this year. With the new engine plant, Honda’s production could increase to 700,000 vehicles per year.