BEIJING, June 2 -- DaimlerChrysler AG said yesterday it would increase the percentage of domestically produced parts in cars built on the Chinese mainland by more than eight fold over the next two years to speed up localization to meet government requirements.

    In 2008, the world's fifth-largest automaker will source more than US$840 million of parts and components in China for its various joint ventures here, up from US$100 million currently, according to Trevor Hale, the company's Beijing-based spokesman.

    Next year, the total purchase volume is estimated to reach US$400 million to US$500 million, Hale added.

    DaimlerChrysler, which makes Mercedes-Benz E-class sedans and Jeep sports utility vehicles with Beijing Automotive Group, said the vast majority of domestically purchased components will be used in cars built on the mainland.

    "It is always a challenge to meet the local content requirements in China, especially for luxury car brands, which have low production volume," Hale told Shanghai Daily in a telephone interview.

    The company expects to produce about 25,000 Mercedes-Benz E-Class sedans a year in China. Many local component makers are reluctant to join the company's supply chain due to the small production volume.

    Hale suggested the company could solve that problem by buying more parts than needed for mainland production, and use them in cars built in North America or Europe.

    Increasing the use of domestically made parts could save the company a large amount of money in tariffs. Companies whose cars contain more than 60 percent Chinese-made parts only pay a 10 percent tariff on imported parts, while those that don't meet the threshold pay 28 percent.

    That rule has created a rift between China and the European Union. Talks to solve that dispute two days ago ended with no agreement.

    "DaimlerChrysler understands the Chinese government's efforts to boost production domestically through cooperation between local and foreign companies and it is hopeful that an amicable solution can be reached among the interested governments," Dr. Till Becker, Chairman and CEO of DaimlerChrysler Northeast Asia said on Tuesday.