Chinese state manufacturer FAW is to build an assembly plant in Algeria producing 10,000 vehicles per year under an agreement signed with private Algerian firm Arcofina, the company's CEO told AFP.

The deal provides for an initial investment of five billion dinars ($61 million), Arcofina CEO Abdelouahab Rahim said at the signing of the agreement in Algiers on Saturday, adding that the figure will rise.

To conform with Algerian law, Arcofina will own 51 percent of the plant and FAW 49 percent, with the aim of reducing the Chinese manufacturer's share to 40 percent after three years, Rahim said.

He noted that "there are two manufacturers setting up at the same time" in Algeria, referring to Renault which in September began construction of a car plant in the western region of Oran.

Renault had asked for a production monopoly in the country for at least three years, which was rejected.

"A manufacturer, whoever they may be, cannot have the monopoly on a country," Rahim said.

Launched in 1953, FAW employs 130,000 people worldwide producing buses, cars and lorries and had a turnover of $61 billion in 2012, according to company figures.

Their partner in the planned car plant, Arcofina Holding, is a diversified group that owns hotels and offices and is involved in a huge building project to redevelop the capital Algiers.