Italy's Fiat SpA has signed a memorandum of understanding to build a light-duty diesel engine plant in the southwestern city of Chongqing, with total investment projected at 1.8 billion yuan ($263 million), said the local government.

The Chongqing government said in a statement on its website that the plant's capacity will be 100,000 units annually. 70 percent of production will be exported.

Fiat expects the plant to become its largest outside Italy, according to the statement.