* To set up China JV to invest $600 mln in EV batteries over 5 years
* To build factory in Xi'an, near Samsung Electronic's chip plant
* Samsung SDI currently supplies batteries for BMW i3 (Add comment from company official, market context, share price)
SEOUL, Jan 23 (Reuters) - South Korea's Samsung SDI Co Ltd has signed a preliminary agreement to build an electric car battery factory in China by next year, in anticipation of a boom in a market backed by government subsidies.
Samsung SDI, which also makes smartphone batteries and TV displays, is investing after China's central government set a target to have 5 million "new energy vehicles" - defined as all-electric battery vehicles and "near all-electric" plug-in hybrids - on the road by 2020.
Samsung SDI, an affiliate of Samsung Electronics Co Ltd , will form a joint venture in China by April to invest $600 million in the factory in Shaanxi province and in other electric car battery-related businesses over the next five years, the company said on Thursday.
The joint venture will consist of Chinese parts maker Anqing Ring New Group and a company owned by the government of Shaanxi province, Samsung SDI said, without identifying the latter.
The signing "will allow us to gain a foothold in the world's biggest electric car market," Samsung SDI Chief Executive Park Sang-jin said in a statement.
Samsung SDI will break ground for the factory in the latter half of this year in the city of Xi'an, where affiliate Samsung Electronics is building a chip factory.
The factory, which will be Samsung SDI's first overseas, will open next year, could cater for current customer BMW as well as car makers such as Volkswagen AG who are rushing into electric cars in China, analysts said.
Samsung SDI, which supplies batteries for BMW's i3 and Chrysler's F500e electric cars, is in talks with Tesla Motors Inc and other car makers to supply electric car batteries, a Samsung SDI spokesman said previously.
Samsung SDI currently has electric car battery manufacturing facilities in the southeastern port city of Ulsan in South Korea.
Shares of Samsung SDI were down 1.3 percent as of 0203 GMT, underperforming the wider market's 0.7 percent decline. (Reporting by Hyunjoo Jin; Editing by Michael Perry and Christopher Cushing)