Chinese carmakers pursue tie-ups in Taiwan

TAIPEI (Reuters) - Two major Chinese carmakers are seeking to research and develop cars in Taiwan, driving economic ties between the two political rivals to a new level and boosting the island's moribund sector, industry sources said on Wednesday.

China's Geely Automotive Holdings (0175.HK) would work with a company under Taiwan-based Yulon Motor Co Ltd (2201.TW) to make a new economy-class car in 2010, following an agreement signed earlier this month, a Yulon news official said.

Chery Automobile Co, China's largest indigenous carmaker, with 356,000 vehicles sold last year, wanted to increase cooperation with another Taiwan company, Auto21, the island's Economic Daily News said on Wednesday.

Both Chinese companies wanted bases in Taiwan to carry out manufacturing for overseas markets, the newspaper said.

A number of home-grown Chinese carmakers, including Chery, are keen to break into foreign markets and are aggressively developing their own brands while moving beyond the small, low-priced car segment into more upmarket vehicles.

Relations between China and Taiwan have warmed since the island's President Ma Ying-jeou took office last year, heralding landmark trade talks and the signing of a flurry of deals to push open the tourism, transportation and financial sectors.

Further cooperation between Chery or Geely and their Taiwan counterparts had not been ruled out, as officials from the Chinese companies attended a 500-person automotive convention in Taipei this week, said a publicist with Taiwan's Automotive Research & Testing Center, a convention organizer.

"We're pretty optimistic about it," the publicist said. "It's an advantage for the Taiwan industry, which is now flat."

On Wednesday, two automotive associations from each side signed an agreement pledging more extensive Taiwan-China cooperation and joint efforts to expand in world markets, the research and testing center said.

Yulon shares rose 1.36 percent on Wednesday, outperforming the broader Taiwan stock market . Geely shares were down 0.27 percent in Hong Kong.

(Reporting by Ralph Jennings; Editing by Chris Lewis)