The plan was submitted in August to the State-owned Assets Supervision and Administration Commission under the State Council, the highest authority for all state-owned companies in China, the report said.

JAC, or Jianghuai Automobile Co., Ltd., will concede shares to Chery in exchange for using the latter's license to produce Sedans.

JAC, based in Hefei, capital of Anhui Province in east China, has been eying the more lucrative sedan market for some time, but the central authorities have stopped issuing new licenses amid concerns of oversupply.

The company had already poured hundreds of millions of yuan into its sedan project. A new plant with a capacity to produce 50,000 cars a year was expected to be operational in October, the report said.

Chery, also based in Anhui, was planning to launch its initial public offering (IPO) sometime next year, the report said.

Chery, one of the few Chinese automakers with its own brand, will acquire part of JAC's assets at a discounted price and get technical support from JAC for its commercial vehicle project. The merger plan was supported by the Anhui provincial government, which was keen to nurture a stronger automobile industry as competition in the industry heated up, according to the report.

(Xinhua News Agency September 14, 2006)