October 7, 2011 / 2:05 PM / 7 years ago

China's JAC Motors to build plant in Brazil

* Second Chinese carmaker to produce vehicles in Brazil

* 80 pct of capital will come from local SHC Group

* Government driving up the cost of imported cars

By Vivian Pereira and Brad Haynes

SAO PAULO, Oct 7 (Reuters) - The Brazilian operator of China’s JAC Motors brand announced a 900-million-real ($510 million) investment to build a factory producing affordable cars in the world’s No. 4 auto market.

JAC Motors will provide 20 percent of the capital, with the rest coming from the local SHC Group run by businessman Sergio Habib, SHC said in a statement on Friday.

The plant in Bahia state, expected to produce 100,000 vehicles annually beginning in 2014, will be the second producing Chinese-branded cars in Latin America’s largest economy, where authorities are pushing up the cost of imported cars.

Chinese carmaker Chery started building a plant in Brazil in July.

JAC called off plans to invest $600 million in a Brazil factory after the government, aiming to protect local jobs, raised taxes on cars with less than two-thirds domestic content.

Habib’s investment revives plans for the factory and moves SHC into production as well as sales for the Chinese brand. The group currently owns 40 JAC dealerships in Brazil and expects to have 200 by 2014.

Habib brought France’s Citroen brand to Brazil in the 1990s.

Brazil is a key market for the world’s biggest automakers, including Italy’s Fiat SpA , Germany’s Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co .

The Brazilian economy grew a hefty 7.5 percent last year, and the number of middle-class citizens has grown 25 percent in the past decade, making the country a crucial growth market for carmakers as major developed economies stagnate.

However, auto output plunged in September as carmakers throttled back production due to high inventories and signs of cooling demand, reinforcing evidence that Latin America’s largest economy is shifting into lower gear.

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