Chinese government sources say that Fiat has agreed to set up a light diesel engine plant in southwest China.

The project, located in Chongqing, will have an annual capacity of 100,000 units, with 70 percent of the output expected to be exported, the Chongqing Development and Reform Commission said in a statement.

"Fiat will seek to start building the project at an early date and hopes to make Chongqing Fiat's largest overseas production base," it said.

Fiat's HCV unit Iveco also has a joint venture with Shanghai-based SAIC Motor and Chongqing Heavy Vehicle Group in the city.