General Motors will increase capacity at its Chinese plants by 50% by 2006 and begin assembling Cadillacs there next year, Reuters reported.

GM reportedly said on Tuesday it planned to raise total installed capacity in China to 766,000 vehicles by 2006 from 510,000 now, tacking on production lines at its main Shanghai plant and at another in the southern region of Guangxi, but did not reveal the value of the investment.

Reuters said GM, coping with stuttering sales in its home market, plans to launch a local vehicle financing venture that should increase sales and is also gearing up a marketing push for its Cadillac brand, a mainstay in a product line that includes Buick, but which virtually vanished from Chinese roads in the 1990s.

According to the report, GM, the second-largest foreign player in the Chinese market after Volkswagen, will assemble its luxury Cadillacs in Shanghai - it now imports less than 100 Cadillacs every year.

Reuters said the Cadillac DeVille is currently sold in China for 870,000 yuan ($US105,100) and noted that average disposable income in Shanghai was 13,250 yuan last year, but this is still one of the highest in China.

GM is straining its existing production capabilities in the country, analysts told Reuters.

"The expansion plans should help GM deal with its production bottleneck," Yale Zhang at Automotive Resources Asia told the news agency, brushing off fears that oversupply could spark a debilitating price war and adding: "The news is not at all surprising."

KPMG's Financial Advisory Services has estimated that overcapacity could hit 2.3 million cars, or 90% of forecast sales, by 2005, Reuters added.

Reuters said GM foresees China overtaking Japan to become the world's second-largest car market in three to five years and plans to add an extra 100,000 units of capacity to its Shanghai line, up from 200,000, which will be ready for vehicle production by the end of 2005.

Its Guangxi plant, called SAIC-GM-Wuling, would have an extra 150,000 units of annual capacity installed, taking capacity at the mini-vehicle and light van maker to 336,000 by 2006, Reuters added, noting that GM expects to sell three million vehicles a year in China by 2012 and saw sales from four Chinese ventures rise 38% in the first three quarters to 267,395 units, already overtaking last year's 264,101.

According to Reuters, GM said it planned to assemble at least three Cadillac models in China, initially relying on "semi-knocked down kits" (SKDs), exporting cars mostly built in the United States to China, where final assembly will take place.

GM will also apply to offer financing services in China with a local partner, the report said.