The announcement came after Caterpillar said it would open a production facility for hydraulic excavators in Nanjing and began construction on a major plant for wheel loaders in Suzhou that would start production in April next year.

Despite forecasting that economic weakness in major industrialised economies would persist into next year, Mr Owens said Caterpillar's sales on the mainland and in other emerging economies would offset slowing global demand.

'The biggest challenge we have here is supply constraints. Demand appears to be very strong,' he said.

With its order books full until the end of the year, Caterpillar expects sales on the mainland to exceed US$2 billion this year and double to US$4 billion by 2010.

Caterpillar has been a major beneficiary of the boom in global oil and commodity prices, which have driven demand for construction and mining equipment.

However, the higher cost of raw materials, especially steel, also forced the firm to raise prices at mid-year.

Tokyo-based rival Komatsu has warned that prices may have to rise by as much as 10 per cent this year.

'We're going to take prices in line with what the global market will allow us to take and that are competitive,' Mr Owens said.

'We're responding to a very significant increase in the prices of some of the basic materials we use a lot.'

Capturing demand

Company targets boom in mainland demand for heavy equipment

Total amount the firm will invest to expand its mainland facilities, in US$: $120m