London taxis could soon be competing for space with bicycles on the roads of Shanghai and Beijing after Manganese Bronze, which manufactures London’s black cabs signed an agreement with a Chinese car manufacturer to produce the iconic black cab.

The heads of terms agreement with Zhejiang Geely is likely to result in the first overseas production of the black cabs. The cabs, which will be produced in Shanghai, will essentially be the same as their London counterparts but with “slight modifications” such as petrol rather than diesel engines.

Mark Fryer, finance director, said: “The Chinese market is attractive. More and more of the population is moving in from the countryside to the cities and taxi usage is generally higher because many people do not have their own vehicles.”

Manganese’s partners are also considering introducing a Shanghai equivalent of the “knowledge”, the in-depth study of London street routes drivers must complete to obtain a licence to operate a black cab.

The heads of terms, which are not legally binding, establish the intention of producing a definitive legally binding agreement within the next few weeks.

This is not the first time Manganese has made a foray into China. It was bruised in 2002 by its first attempt to create a venture with a Chinese partner, when it linked up with Brilliance China, the vehicle group. The relationship ended in 2002. Its potential partner failed to make a £600,000 payment and, in 2003, Manganese received £1.25m from Brilliance – which also had an aborted partnership with MG Rover – in compensation for the taxi maker agreeing to wind up a licensing arrangement.

Total investment in the proposed joint venture announced on Wednesday is forecast to be £53m, of which Manganese Bronze’s share is £19.85m. The investment will cover purchase of land and intellectual property, and fund construction and factory fit-out.

Mr Fryer said that the agreement would give it access to Geely’s network of 1,000 dealers across the country as well as Geely’s existing facilities which could be extended to manufacture the vehicles rather than starting from scratch.

Final assembly and sales will be undertaken by Shanghai Maple, a subsidiary of Geely, which will have the right to sell these vehicles within Asia, while Manganese Bronze will have the right to sell them in the rest of the world. Manganese will benefit from all sales of the cabs through the joint venture.

The intended capacity of the joint venture facility will be 20,000 vehicles, with production planned to start in mid-2008, subject to timely completion of legal agreements and shareholder approval. “The cost of producing the London taxi is expected to be significantly lower due to higher volumes and purchase of components from Geely’s current low-cost suppliers,” it said.

However, a spokesman stressed that manufacturing in Coventry, where London Taxis International is the biggest UK-owned vehicle manufacturer and which employs 350 people, would be unaffected. Asked whether closure of the plant might be considered over the longer term, the company said: “There is no intention of closing Coventry. However there is a move towards more component sourcing from China, which we already do.”

Manganese Bronze has been pursuing a strategy of international expansion following the divestiture of its loss-making components division. In June it emerged that talks had taken place on sales and manufacturing in Pakistan with Manganese and a local consortium.

The Chinese joint venture, the company said, would “increase the appeal of our iconic vehicle around the world. We look forward to concluding a final agreement in the near future”.

On Tuesday night, Manganese shares jumped 5 per cent to an eight-year high of 357½p amid rumours of the joint venture. Shares were down 2.8 per cent in early trade on Wednesday at 347½p.

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