Caterpillar Inc. is carving out a larger share of China’s healthy market for construction machinery by purchasing a minority interest in one of the country’s leading producers of front-end wheel loaders.

The contract gives Peoria, Ill.-based Cat the option to buy all remaining shares of Shandong SEM Machinery Co. Ltd., Qingzhou City, China, in 2007. "Our interests are long-term to acquire 100% ownership," says Cat spokesman Benjamin S. Cordani. The manufacturer made the announcement March 22. No more details were disclosed.

The wheel loader is one of the most sought-after machines in China. The country produced 92,800 of them last year, an increase of 12% since 2003 and 110% since 2002, according to Zhongwen Mao, vice secretary general of China Construction Machinery Association, Beijing. Shandong SEM has a 6% market share in Chinese wheel loaders, according to David Phillips, managing director of Off-Highway Research, London.

Analysts think the deal will help Caterpillar get its "foot in the door" in China, says Charles Yengst of Yengst Associates, Wilton, Conn. Further in the door, that is–Cat has operated offices there since the 1970s.

The firm now employs 2,000 people in China, owns five facilities, runs several joint-ventures and distributes to five local dealers. A partnership with Xuzhou Construction Machinery Group, China’s largest equipment maker, produces Cat excavators and crawler tractors.