PEORIA, Ill. — Heavy duty engine and construction equipment manufacturer Caterpillar is aggressively pursuing the Chinese market, which the company estimates could become as big as $10 billion a year.

Cat has just signed an agreement with the Chinese government by which it will assist in the development of a remanufacturing industry, making it the first foreign company licensed to perform such a process in the country, Cat says.

In August, the company opened a plant in Shanghai that will function as its Asian remanufacturing center. At that plant, the company will recycle and refurbish old motors and hydraulic pumps which will then be sold at a deep discount.

Caterpillar group vice president Stu Levenick said the agreement is central to the company’s goal of quadrupling its business in China by 2010. “This fits with China’s strategy,” he adds, since China’s explosive growth has left it beset by problems of pollution and depleted resources and in need of industries that will protect its environment.

Concerns include regulations that complicate the importing of old engines and parts, the possibility of a backlash in China against foreign relationships, and the threat of a trade war that could result from tensions over trade and currency issues. Caterpillar’s profits have benefited from high demand for commodities in places like China and India, with second-quarter net profits rising 38 percent over the previous year.