If successful, the joint venture will produce Toyota model cars catering for the mid-market and will double Tianjin Auto's annual car production capacity.

Toyota has a substantial presence in car-parts and component manufacturing in Tianjin, which was widely seen as paving the way for the joint venture.

It has teamed up with Tianjin Auto's parent, Tianjin Automotive Industrial (Group), to set up a joint venture to produce engines.

A source said Toyota would not be among the strategic investors in Tianjin Auto, as it would seek to take a maximum 50 per cent stake allowed for foreign investors in the mainland's car manufacturing projects.

Tianjin Auto, which makes Charade cars under a technology transfer with Toyota associate Daihatsu, plans to launch its road show on Monday with a view to raising US$150 million from the first Tokyo listing for a mainland company.

It ranked second in passenger car production and sales in the mainland after producing 96,000 Charades last year.

A research report issued by listing sponsor Daiwa Securities said Tianjin Auto was considering the possibility of a listing in Hong Kong.

It expected the company to post a compound annual growth rate of 24.1 per cent in net profit from 1997 to 2000 as weak product prices would be offset by higher volume growth.

It said Tianjin Auto had outstanding long-term debts of 1.64 billion yuan (about HK$1.52 billion) and short-term debts of 952 million at the end of last year.

Its net debt-to-equity ratio was expected to fall from 151.5 per cent last year to 26.6 per cent this year, following the issue of new shares and the revaluation of assets.

Accounts receivable shot up 62 per cent to 2.1 billion yuan last year, due to a company-financed hire purchase programme to support sales.