Honda Motor Co has outbid General Motors Corp's Adam Opel to replace Peugeot Citroen in making cars in southern China. It will be the first leading Japanese car-maker to establish a mainland production base and will probably be the last foreign company to do so before 2000 under Beijing's strict control over new car projects. Honda will replace Peugeot of France in its failed joint-venture Guangzhou Peugeot Automobile Co and produce Accord cars using existing facilities at the Guangzhou plant. The long-awaited deal will be a relief to shareholders in Hong Kong-listed Denway Investment, whose main asset is its 46 per cent indirect stake in Guangzhou Peugeot. A letter of intent signed between Honda, the Guangzhou government-owned Guangzhou Automobile Group Co and Dongfeng Motor Corp will provide for a US$200 million joint venture to be 50 per cent held by Honda and the rest by the Chinese firms. Dongfeng's beneficial interest in the joint venture will be no more than 10 per cent. The new joint venture is scheduled to roll out the first Accord car in 1991. It will initially produce 30,000 units a year. Honda, Japan's third largest car-maker, believes that is the minimum for making a profit. Honda chairman Yoshihide Munekuni said: 'It has always been our goal to have a car assembly plant in China. We were preparing to do this even before Peugeot pulled out of China.' Honda and Dongfeng have a 50-50 joint venture in Huizhou, Guangdong, to produce car parts for exports. Denway vice-managing director Hu Peizhuo said: 'It is only a preliminary agreement, and it does not have legal binding power. It is also subject to Beijing's approval.' The Guangzhou government-controlled companies will keep talking to Honda and Opel and compare the two before making the final decision. Although Mr Hu said Denway's indirect stake in the joint venture should not be affected by the Honda deal, and the company had given up a plan to sell down its stake, a statement from the company suggested the stake might be reduced to 36 per cent. The statement said its 95 per cent-owned subsidiary would hold not less than 36 per cent interest in Guangzhou Peugeot on completion of the restructuring. Mr Hu did not say what had happened to other shareholders, previously said to include International Finance Corp, Citic and Banque National de Paris. It is not yet known whether Honda's participation in the joint venture is a step towards the government's plan to develop a bigger car production base in southern China.