A woman walks past a logo of Honda Motor Co outside the company's dealership in Tokyo, Japan, January 27, 2016. Picture taken January 27, 2016. REUTERS/Yuya Shino

Honda Motor Co. will build a new factory in Wuhan, China, that would begin producing compact cars in spring 2019, boosting its output capacity in the country by about a fifth, the Nikkei business daily said on Tuesday.

Japan’s third-largest automaker by sales will spend “hundreds of millions of dollars” on the plant, which will start with capacity of 120,000 cars a year and gradually double in line with demand, the paper said.

The factory will be operated in a joint venture with local partner Dongfeng Motor Group Co., the Nikkei said.

Media representatives at Honda were not immediately available to comment.

China introduced a tax break a year ago that effectively shaves $1,000 off the price of passenger cars with engines of up to 1.6 litres, the Nikkei said.

(Reporting by Chang-Ran Kim; Editing by Stephen Coates)