CHINA'S Chery Automobile Co Ltd is expected to form an alliance with Fiat SpA to produce and market Fiat-brand vehicles in China, extending an earlier partnership with the Italian car maker in China.

"A feasibility study on making Fiat's Alfa Romeo under licensed production is near completion," said people familiar with the matter who declined to be identified before a formal announcement.

"The cars will be built in Chery's Wuhu plant, and production will kick off as early as 2009."

The cooperation follows a joint announcement at the 2007 Shanghai Auto Show in which the two companies said they were evaluating several possible forms of cooperation in the Chinese passenger car business.

The source also said Chery is weighing the possibility of taking over Fiat's stakes in its Chinese joint venture with the Nanjing Automotive Industry Corp, as long as Fiat makes sure the buyout will encounter government opposition.

Chery's spokesman was not available for comment yesterday.

Cooperation between Chery and Fiat started at the end of last year when China's fourth-largest car maker agreed to supply 100,000 gasoline engines a year for Fiat models made inside and out of China.

Closer cooperation with Chery would help Fiat meet its target to sell 300,000 vehicles in China after an uneasy relationship with Nanjing Auto.

Nanjing Fiat Automobile Co Ltd reported that it sold 30,000 of its small Perla, Siena, Palio and Weekend sedans in China last year after eight years in the market, compared with Shanghai General Motors Corp's 400,000 units during the same period.

Turin-based Fiat also worried that Nanjing Auto's efforts on developing its own models may distract attention for the joint venture, Fiat Chief Executive Officer Sergio Marchionne said earlier.

Marchionne visited China at the end of last month seeking an end to Fiat's relationship with Nanjing Auto, according to a report yesterday in Automotive News. The decision is still pending, the report indicated.