China's eHi Car Rental Co Ltd, backed by venture capital firms including CDH Venture Investment and Jafco Asia, is planning an initial public offering in 2011 to fund expansion in the fast-growing but fragmented domestic car rental market, Chairman Ray Zhang said on Monday.

EHi, which recently raised $20 million from investors, may conduct another round of private-equity financing toward the end of 2010 before listing either in China or overseas, Zhang said in an interview in Shanghai. The location and size of the IPO would depend on market conditions, he said.

Car rentals in the United States is a sunset business, but in China, it's a sunrise one, said Zhang, who founded Shanghai-based eHi in 2006. China has the potential to become the world's biggest car rental market, where the world's biggest car rental company could be born.

Hertz Global Holdings (HTZ.N), the world's biggest consumer car rental company, and rival Avis Budget Group Inc (CAR.N) have been cutting costs and laying off staff as the global recession cut rental demand from consumers and companies.

Both companies have operations in China that compete with eHi.

Zhang said two thirds of the 300 million population in the U.S. owned cars, but car ownership in China would be restricted by space shortages in cities and the need to reduce pollution, creating car rental demand in a vehicle market expected to be the world's biggest this year.

About 200 million Chinese held driving licenses, and that number was growing by 20 percent per year, outpacing growth in car ownership, he said.

Premier Wen Jiabao has called for rational car consumption and a more developed car rental market to reduce pollution and energy consumption.

EHi, which competes with state-owned rivals such as Jinjiang International as well as privately run China Auto Rental and Top One Auto, this month raised $20 million from CDH, Jafco and Qiming Weichuang Venture Capital Management in a second round of financing.

EHi, which provides both self-drive and chauffeur-drive services, plans to use the proceeds to help expand its fleet to 10,000 cars in three years from about 1,000, vying for a bigger share of a market crowded with at least 10,000 players.

Zhang said the company's revenue would more than triple to 100 million yuan ($14.6 million) this year from 30 million yuan in 2008, and may double next year, adding that eHi was already profitable. (US$1=6.832 Yuan)