Caterpillar Inc. (CAT) and a Chinese engine company will embark on a joint venture for engine remanufacturing, as Caterpillar attempts to replicate the success of its U.S. rebuilding business in China.

Caterpillar, the world's largest producer of construction machinery by sales, said Monday it will establish a new company with Guangxi Yuchai Machinery Co. that will rebuild Yuchai and Caterpillar's diesel engines and components in China. Yuchai, a subsidiary of China Yuchai International Ltd. (CYD), is China's largest producer of internal combustion engines, Caterpillar said.

"We look forward to developing the new company using our remanufacturing expertise to provide sustainable, cost-effective solutions for customers and ultimately growing this new market," said Steve Fisher, vice president in charge of Caterpillar's remanufacturing operations, in a written statement.

Fisher has aggressively expanded Caterpillar's presence in engine rebuilding in recent years. Remanufacturing had largely been left to independent rebuilders and service shops. By leveraging its manufacturing technology for new diesel engines, Caterpillar has been able to capture additional revenue from doing high-quality restorations of older, worn-out engines.

Caterpillar is counting on remanufactured engines and parts becoming popular with price-driven buyers in China's machinery market.

Shares of Caterpillar were recently up 0.8% at $57.97.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
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