The Shenzhen-based joint venture of French car maker PSA Peugeot Citroen

and China Changan Automobile Group said on Sunday it plans to sell premium cars in China, the world's biggest auto market, and in some overseas markets.

With an initial investment of 8.4 billion yuan ($1.3 billion), the 50-50 Changan PSA Automobiles Co Ltd venture said it will set up a research and development center to develop its own brand, as well as the Peugeot and Changan brands.

It is the first joint venture to be allowed to set up an overseas production base and operate the export of multiple brands, the company said in a statement.

Changan PSA will target the fast-growing premium segment in China and will focus initially on introducing the Citroen DS line, which made its debut at the 2011 Shanghai autoshow.

China plays an important role in the group's development strategy, Peugeot's chief executive Philippe Varin said in the statement.

Varin was in China's booming southern city of Shenzhen on Sunday for the foundation ceremony of the venture.

The European situation is a bit uncertain for the time being, Varin, who is also the chairman of the managing board of PSA Peugeot Citroen, said during the ceremony.

This makes a point that to be in China as a big player, it is very important for us because there is growth. There is a win-win spirit with our partners.

Car sales in China climbed only 1.4 percent in October, causing the growth in the first 10 months to ease to 5.9 percent as the government axed subsidies on small cars and raised the eligibility for fuel-saving incentives.

This compared with an annual growth of 33 percent for the whole of 2010.

But the Chinese premium market is a bright spot and rose 33.5 percent in the first half of 2011, Changan PSA said.

Changan PSA aims to produce more environmentally friendly cars before the completion of the joint venture plant.

Mass production is due to start in the middle of 2013.

The venture company will have initial annual production capacity of 200,000 vehicles and engines and will gradually expand according to market demand.

Covering an area of about 1.3 million square meters, the venture company will have two vehicle plants and one engine plant. A research and development center with investment of 500 million yuan is being built simultaneously.

About 2,000 employees would work in the venture company by the end of 2012.

(Reporting by Alison Leung; Editing by Paul Tait)

China