Fiat SpA, Europe's sixth-largest automaker by market share, will locally produce its gearboxes in China, as part of its plan to gain a foothold in the world's biggest automobile market.

The gearboxes will be produced in partnership with the Italian carmaker's Chinese partners - Guangzhou Automobile Group Co Ltd and Hangzhou Advance Gearbox Group Co Ltd, according to listed Hangzhou Advance's statement filed to the Shanghai Stock Exchange on Tuesday.

The deal involves a joint investment of 2.27 billion yuan ($350 million).

The announcement of the deal sent Hangzhou Advance's shares up by 1.84 percent, to close at 14.98 yuan a share on Tuesday.

The gearboxes will be produced by Hangzhou Advance's subsidiary, Hangzhou Iveco Automotive Transmission Technology Co Ltd, a joint venture company established in 2007 in which Fiat, Guangzhou Automobile Group and Hangzhou Advance have equal equity ownership.

Under the agreement, Hangzhou Iveco will acquire the manufacturing permit for dual dry-clutch transmissions from Fiat, on top of expanding its manufacturing capacity and upgrading technologies.

The production of the gearboxes is expected to start in 2013 and is expected to eventually achieve an annual capacity of 500,000 units, according to the statement to the stock exchange.

With a registered capital of 240 million yuan, Hangzhou Iveco reported a net loss of 8.58 million yuan by the end of 2010.

Analysts said the move would greatly support Fiat's local production plans of its car models, a strategy that aims to secure more market share in China, the world's biggest automobile market.

In 2009, Fiat formed a joint venture with Guangzhou Automobile Group that aims to initially produce 140,000 units of Fiat-branded cars and 220,000 engines a year. The first made-in-China Fiat is expected to roll off the production line next year.

The automaker hopes to secure 2 percent of the market share in China with the made-in-China Fiat by 2014, through the expanded production of 250,000 to 300,000 units annually.

China's booming automobile market in recent years has boosted demand for local parts.

According to a report released by global consulting firm Alix Partners last week, automotive parts suppliers in China managed to maintain the highest profitability globally last year.

The report said that in 2010, the average profitability of China's parts suppliers was about 10 percent, 2.4 percent higher than carmakers.

Statistics showed that the parts industry earned revenues of 1.64 trillion yuan in 2010, a surge of 44 percent year-on-year. The parts industry has largely benefited from China's soaring automobile market.

Last year, Europe's biggest automaker Volkswagen AG started the local production of its fuel-efficient seven-gear DSG double-clutch transmission in Dalian, Liaoning province, with an investment of 400 million euros ($586 million). The decision made China the only country that produces Volkswagen's gearboxes outside of Germany.

In February, Beijing Automotive Industry Holding Co acquired Sweden's Weigl Transmission Plant AB for 31 million euros, in a bid to forge its own ability to design, develop and build advanced gearboxes in the next five years.

That came a year after the Chinese parts producer purchased the technologies of the old Saab 9-5 and pre-2006 Saab 9-3 series.