Honda Motor Co., Japan's second-biggest carmaker, plans to increase production capacity in China by 23 per cent as it expects solid demand there for its fuel-efficient vehicles, a newspaper reported yesterday.

Honda shares rose over three per cent in early trading, in line with gains at rivals Toyota Motor Corp. and Nissan Motor Co.

The Nikkei business daily said Honda is planning total output capacity of 650,000 vehicles a year by modifying existing lines at its Dongfeng Honda Automobile unit, which assembles the Civic car and the CR-V sport utility vehicle, for several billion yen.

Car sales growth in China, the world's second-largest auto market, slowed to a single-digit rate last year for the first time in at least 10 years as consumer confidence waned with a slowing economy.

But the Nikkei said Honda judged that sales of its Civic and other fuel-efficient cars could still grow as sales at the Dongfeng unit jumped 29 per cent last year, much bigger than the percentage growth in China's nationwide auto sales.