BRITISH American Tobacco announced yesterday it is to invest £800m in a factory in China.

Only weeks after ceasing production in Darlington, with the loss of nearly 500 jobs, the second largest tobacco producer in the world has become the first foreign company to receive permission to manufacture cigarettes in China.

The group, whose brands include Kent, Dunhill, Lucky Strike and Pall Mall, has been given approval by the Chinese government to set up a factory capable of producing 100 billion cigarettes a year.

It will be the first time a foreign company has moved into cigarette production in the country. Until now, the industry been run as a state monopoly.

China is the largest tobacco market in the world, with annual sales of about 1.78 trillion cigarettes.

BAT will spend £800m building the factory, although details of the location are not yet known.

It said the factory would take about two years to complete and would then take several years to reach optimum production.

The group, which already distributes cigarettes such as Kent and Chinese brand State Express 555 in China, said the move would make the country its biggest market. BAT sold about a billion cigarettes in China last year.

The factory will be established as part of a joint venture with China Eastern Investments.

BAT's recently retired chairman, Martin Broughton, said: "I am extremely pleased with the central government (of China)'s decision to allow British American Tobacco to significantly expand its involvement in China."

The group has 180 factories in 60 countries and employs about 85,000 staff. It has 350 employees involved in distribution in China.

Earlier this year, BAT announced a 26 per cent fall in annual profits to £1.57bn as it faced up to higher restructuring costs, including the high costs associated with the closure of Darlington's factory and losses on the sale of operations.

Last month, the company left £1m to Darlington when it stopped production to help job creation.

During what it described as a "highly significant year", BAT also completed the £1.63bn acquisition of Ente Tabacchi, of Italy, and announced a deal to merge its US business with RJ Reynolds.