Chang’an plans to begin production of its pure electric vehicles at the Beijing facility in July 2011

China Chang’an Automobile Group began construction Sept 30 on its production facility in Beijing, where it will make its own brand name medium and high-end cars and new-energy vehicles.

The 11.5 billion yuan plant will have an annual production capacity of 500,000 vehicles and a similar number of engines.

Chang’an plans to begin production of its pure electric vehicles at the Beijing facility in July 2011 and start assembly of its sedans in March 2012.

PSA Peugeot Citroen may shelve plans to sell hybrid cars in China unless Beijing softens demands that foreign automakers hand over technology in return for market access, senior executives said.

Europe’s second-biggest carmaker is waiting for China to enact planned legislation on foreign investment before deciding whether to develop the gasoline-electric vehicles, programs and engineering chief Guillame Faury said in an interview.

“Our strategy is to be present in China and take our best technology there,” Faury said at the Paris Motor Show.“But we want the technology to remain under PSA’s control.”

Peugeot’s approach highlights the dilemma facing carmakers eager to expand into China, which last year overtook the U.S. as the world’s largest auto market. Nissan Motor Co. is evaluating potential Chinese demand for its Leaf electric car as it discusses joint production with local partner Dongfeng Motor Group Co.

“We have to make sure that the batteries aren’t simply going to be replicated,” Nissan Senior Vice President Andy Palmer said in an interview. “In any developing market the transfer of technology is bound to be a discussion point.”

Peugeot wants Beijing to tone down a draft law that would require key innovations to be controlled through structures that are majority-owned by Chinese partners, Chief Financial Officer Frederic Saint Geours said.

“The Chinese government will have to reconsider its position,” Saint Geours said in an interview. Peugeot’s Chinese joint venture, also with Dongfeng, and a second partnership it’s finalizing with China Chang’an Automobile Group Co. are both under 50-50 ownership.

‘Half the Growth’

One Chinese government condition for approving the new venture is that Peugeot contribute innovation, the CFO said.

“China’s going to account for half of the growth in the global car industry over the next decade,” Saint Geours said. “If you want an adequate share of that market you have to go there with new technology.”

Peugeot said yesterday it may adapt its new diesel-electric hybrid design — which marries an electric rear transmission to a combustion engine powering the front wheels — to produce gasoline versions with its Chinese partners.

The carmaker has seen recent drafts of the new law and expects it to come into force by the end of the year, Chief Executive Officer Philippe Varin said.

“This is going to affect the new-energy technologies we introduce,” Varin told reporters in Paris yesterday. “We’ll make our technical decisions when we know the final dispositions.” The company still hopes to win Beijing’s approval for its alliance with Chang’an early next year, Varin said.

Third Factory

Peugeot is adding a third factory with Dongfeng to increase the partnership’s annual capacity to 750,000 vehicles from 450,000. While announcing the French carmaker’s second Chinese venture in July, Peugeot and Chang’an outlined plans to assemble Citroen DS cars in the country by 2012 and introduce a new brand.

Under Varin, Peugeot is pushing to expand overseas and reduce dependence on saturated western European markets. With a market share of 3.4 percent in China, its operations are dwarfed by General Motors Co. and European No. 1 Volkswagen AG, which respectively claimed 16.3 percent and 13.5 percent of China’s car market last year.

China Chang’an is the parent of Chongqing Changan Automobile Co., Ford Motor Co.’s partner in China.