VDM Group will set up a joint venture company with Chinese giant SANY in Australia for the lease, sales and service of heavy construction equipment.

The two parties have signed a letter of intent to establish a joint venture company with VDM holding a 49 per cent stake and SANY holding a majority 51 per cent stake.

A statement from VDM's board said: "SANY and VDM are completely aligned in their commitment to offering competitively-priced quality and innovative products and delivering excellence in customer service.

"We are confident SANY will become a significant player in the Australian construction equipment market."

SANY is one of the world's largest construction machinery manufacturers with 2012 revenue of about $US7.5 billion.

SANY operates in 150 countries and has five industrial parks in China as well as four R&D and manufacturing centres in the United States, Germany, India, and Brazil.

VDM is majority owned by two Chinese entities, H&H Holdings and Kengkong Investments.

VDM shares were off 0.1 cent, or 7.14 per cent, to 1.3 cents at 12.50pm.

The West Australian

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