As widely predicted by industry observers, a statement issued by Nanjing Automobile at the weekend said had agreed with Shanghai Automotive Industries (SAIC) a "comprehensive cooperation" on design, production and sales.

The Associated Press (AP) noted that the announcement said they were looking at an asset swap but made no mention of whether they were discussing an outright merger.

Here in the UK, NAC Group, parent of Nanjing Automobile Corporation (UK) said it had signed a letter of intent on cooperation with SAIC Group that would see the two companies "seek for a commercial partnership in the near future".

"The two companies share a common vision to jointly build an automotive group that will become the largest, world class automotive group in China with the resources to develop a highly effective global development strategy," a statement said.

"In order to effectively integrate and make the best use of the joint resources of the two companies, there will be a carefully devised strategic cooperation on passenger cars, commercial vehicles and independent brands, as well as automotive parts and component manufacturing."

"The two parties have agreed to an initial exploration of a co-operation," said NAC UK chairman Wang Hong Biao. "The parties have signed a letter of intent and will now seek to explore all future opportunities and strategies. Any future plans will only serve to strengthen the position of each company and its workforce."

The group and in particular the MG brand, see the future cooperation as a major step in securing and delivering its long term expansion and development prospects, the automaker added.

"SAIC Group is a world-class, highly resourced and business competitive organisation and NAC is a motor company with successful history which is very competent in R&D and manufacturing of a range of vehicles," added Wang. "I view this development as a major boost to Longbridge, our workforce and our rapidly developing dealer network. This can only assist and accelerate our delivery of new, world-class vehicles to the UK market and beyond."

The two companies will now proceed to undertake due diligence before making further announcements on the detail of the future cooperation, NAC said.

The move had been suggested since SAIC picked up the rights to the former British brand Rover and Nanjing secured the UK production assets of the former MG Rover and rights to the MG name. The pair have since started producing near-identical, updated versions of the British company's 75 (renamed Roewe 750) and MG ZT - Nanjing is also close to volume production of the MG TF roadster, UK output at Longbridge is supposed to start in September or October.

The Associated Press said it could not obtain further details of the cooperation deal from either Nanjing or SAIC in China.

But the news agency noted that the Chinese government has been encouraging such links in its fragmented [and 'regionalised'] motor industry, suggesting that pooled resources would create more competitive models, particularly for export.

The country has about 150 automakers but sales are dominated by models made by joint ventures with foreign automakers.

Nanjing Auto also the local partner of Fiat. After a recent spat in which the Italian automaker was said to have suggested Nanjing was too focused on MG, Fiat announced significant new investment in China, where it also has ventures with Chery and SAIC.