Fiat SpA, Italy's largest automaker, will build a 1.8 billion yuan ($263 million) commercial-vehicle engine factory in western China as the government seeks investment to boost the region's economy.

The Chongqing city plant will have an annual capacity of 100,000 diesel engines, according to an Aug 19 statement posted on the Chongqing Development and Reform Commission's website. About 70 per cent of the plant's output will be sold overseas.

Fiat joins Ford Motor Co in boosting production in Chongqing because of the region's low wages and government incentives. The average annual income in Chongqing is about a third less than in Shanghai, according to government statistics.

Chongqing, where Fiat's Iveco SpA unit also has a truck- making venture, will likely become the Turin-based automaker's largest overseas production centre for commercial vehicles and auto parts, the statement said.