Guangzhou Automobile Group has held talks with Hunan Changfeng Motor on a possible tie-up, an insider told a local newspaper.

"We have been in contact over the past few months," an unnamed Guangzhou official told Shanghai Daily, according to a China Economic Net report. "Both companies have proposals but we haven't gone through all the details."

The reports said the deal, if successful, would be the latest merger and acquisition in the world's second-largest auto market after the Chinese government called on industry-wide consolidations to heal the fragmented industry and help Chinese car makers grow and become more competitive.

China Economic Net added that China Business News had reported Guangzhou Auto was planning to take a controlling stake in the pickup and sports-utility vehicle maker Changfeng through its Shanghai-listed unit in a deal expected to be sealed in the fourth quarter of this year.

It also said that Guangzhou Auto was competing with Beijing Automotive Industry Holdings, which is also interested in being involved in the Changfeng restructure. An official from Changfeng Motors denied that report, however.

Guangzhou Auto is the nation's sixth-biggest auto maker and the Chinese partner of Toyota and Honda.

The move could help it form a third partnership with Japanese partner Mitsubishi, which currently owns 16.07% of Changfeng, China Economic Net suggested.

Analysts reportedly said the cooperation would benefit Guangzhou Auto, adding Changfeng's production and engineering strength in SUV and pickups.