SHANGHAI, China (Reuters):

China is considering a plan to develop large passenger jets in a long-term, multi-billion-dollar project that it hopes would wean it from reliance on Boeing Company and Airbus, industry sources said on Monday.

The State Council, China's cabinet, has received a project proposal drawn up after a recent hearing attended by government officials and industry experts, two industry sources told Reuters on condition of anonymity.

The country's two state aircraft makers, AVIC I and AVIC II, as well as the Commission of Science Technology and Industry for National Defense, would be involved in developing the jets, they said.

MAKERS OF PRIVATE JETS

Yuan Liben, an adviser to AVIC I, added that the project would aim to produce a prototype by 2010.

"The project has the backing of the government and the country has done lot of preparation over the years," Yuan said.

AVIC I and AVIC II, both of which make components for Airbus and Boeing, also have experience in civilian jet development and manufacturing.

AVIC I has secured more than 30 orders for its ARJ21 regional jet, scheduled for commercial operation next year, while AVIC II unit Hafei Aviation Industry Company makes the ERJ-145 regional craft in partnership with Brazil's Embraer.

One of the industry sources said that Shanghai, the country's financial centre, has a strong chance of winning the project, given its superior infrastructure, central location and access to capital, despite having lost out to the northern port city of Tianjin in the bid for Airbus's first Chinese aircraft assembly plant, which will build A320 aircraft.

With its air passenger traffic growing at double-digit rates in recent years, China will need about 2,650 new passenger aircraft over the next 20 years, worth US$289 billion, according to the latest projections from Airbus, a unit of European aerospace group EADS.

The country shelved a previous plan to develop large passenger jets after AVIC I's ill-fated 150-seat Y-10, unveiled in the mid-1980s, failed to attract buyers.

NO REAL THREAT

If the revamped jet project goes ahead as planned, however, it is uncertain whether it would pose any real threat to Boeing or Airbus over the next two decades given the tremendous risks involved, industry executives said.

"Getting it into the sky is one thing but securing orders is quiteanother," said one industry veteran. "It took Airbus over 20 years to be on par with Boeing, and China would take that long too to make a bang."