Toyota Motor said on Monday that the Chinese government has approved its establishment of a joint venture to make car engines in the China's southern city of Guangzhou, according to a news agency report.

"We're considering engines for medium-sized cars, but nothing has been decided," a Toyota spokesman told Reuters.

The report said Hong Kong media quoted the city's mayor Zhang Guangning as saying Toyota will invest 30 billion yen ($US275 million) in the venture with Guangzhou Automobile Group Co.

Toyota is likely to take a 70% stake in the venture, which will be in Guangzhou's newly developed Nansha industrial zone, Reuters said.

Annual production capacity will be 500,000 engines, and the remaining stake will be held by Guangzhou Auto, the South China Morning Post said on Monday, according to Reuters.

The venture will be Toyota's first in China to make engines for its popular Camry cars, the newspaper reportedly said.

Reuters noted that Guangdong governor Huang Huahua said earlier this month that Toyota's proposed venture would start with engine manufacturing for exports and could eventually make up to 300,000 cars a year.

Earlier reports have also said Toyota plans to produce Camry sedans in Guangzhou, pending approval from Beijing, the news agency added.

Reuters cited the Post as saying that engine production by the venture is expected to reach one million units by 2005 and will supply a Nansha-based joint venture car plant being negotiated by Toyota and Guangzhou Auto.

Reuters said Toyota is the third of Japan's top three car makers to establish a production base in Guangzhou, the capital of China's prosperous Guangdong province, after Honda Motor and Nissan Motor.

The news agency said Toyota signed an agreement with China's First Automotive Works in April to build cars based on Toyota's Crown model from 2005 with initial output of 50,000 a year in Tianjin and also planned to make Corolla, Land Cruiser and Land Cruiser Prado models at existing factories in China.