South Korean SUV maker SsangYong Motor Co. is exploring a joint venture with China's Shaanxi Automobile Group Co. to establish a manufacturing plant in the world's biggest automobile market.

Mahindra & Mahindra's South Korean arm announced on Wednesday it had signed a letter of intent (LOI) with Shaanxi Automobile Group. The joint venture aims to put up production facilities for completely-built unit (CBU) vehicles and an engine plant. 

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 "It is essential to have a local CBU plant in China to increase our competitiveness in the rapidly growing Chinese car market and to increase our sales volume," Choi Johng-ski, CEO of SsangYong Motor, said.

The first phase of construction will give the plant an annual capacity of 150,000 units by the end of 2019, while the second phase will double its output to 300,000 units yearly.

This will mark SsangYong's first overseas production base in a 50:50 partnership with Shaanxi, the Business Standard reported. 

SsangYong will also put up an automotive cluster with its major suppliers that will also enter the market. This is to make sure products are competitive and to start the production of the company's flagship models and models under development in the second half of 2019, the Economic Times reported.

SsangYong said although it is too early to make a comment on detailed model plans, it had reviewed the central and western parts of China for the development its very first factory and had taken into consideration China's government policies and growth potential.

Following the signing of the LOI, the two groups will organize a team to work on the Xi'an project, which spans over an area of 1.23 million square meters in the Economic Technological Developmental Zone, and to discuss specifics for the establishment of a joint venture.

SsangYong has been eyeing for potential joint ventures in the United States and China after facing sales decline following the Brexit referendum, Live Mint reported citing Vasudev Tumbe, SsangYong's chief financial office.

TagsSsangYong, SsangYong Motor, Mahindra & Mahindra, Shaanxi Automobile, Investments, cars, China Car Market