General Motors plans to increase output at its main car making joint venture in Shanghai, the company said on Wednesday, according to Reuters, which noted that an expansion race among foreign firms has analysts fearing a damaging glut of new cars.

Reuters said the China Daily reported on Wednesday that GM would invest two billion yuan ($US240 million) to double capacity at an existing five-year old plant in Shanghai, raising maximum output by an additional 100,000 cars a year.

The venture’s board had already approved the building of a factory to open by 2005, an executive at Shanghai Automotive Industry Corp, GM’s partner in the $1.5 billion joint venture, said, according to Reuters.

The news agency noted that the expansion could enable GM to increase its now 8% share of a rapidly expanding market in which rival Volkswagen AG [the first western car maker to build cars in China] has about 40%.

Reuters said that GM executives declined to comment on how much the expansion would cost. The company can already make more than 400,000 vehicles annually at four joint ventures in China and expects to sell three million vehicles a year in China by 2012, the news agency added.

“The expansion will enable Shanghai GM to increase its production capacity and product line-up to keep up with rising demand,” GM said in a statement, cited by Reuters. “Shanghai GM is currently running at full capacity on two shifts.”

Reuters said further details would be announced once GM secured final approval from the central government and noted that the China Daily said work on the new plant would begin in August.

According to Reuters, cars sales in China – which reached a million for the first time last year – are expected to be strong again in 2003, driven by strong economic growth, while analysts expect the market to grow anywhere between 15 and 30%, though they caution that a slew of expansions might weigh on profit margins in the near future.

GM is also considering expanding capacity at its existing plants, China spokeswoman Daphne Zheng told Reuters, though she would not provide details. “If you look at how fast the market is growing, it’s not difficult to figure out why we’re doing this,” Zheng reportedly said.

Zheng also told Reuters that Shanghai GM sold about 59,000 cars in the first five months of 2003, up 62% year on year, while GM’s China ventures sold 264,000 vehicles in 2002, a staggering rise of 325%.

The news agency noted that GM executives have said GM is also considering producing its Cadillac CTS luxury car in China if sales of imported models due to arrive this year go well.