Guangzhou Auto and Chery sign agreement

Two of China's State-owned carmakers, Guangzhou Automobile Group Co and Chery Automobile Co, have agreed on a landmark deal in an effort to boost sales and cut costs.

The two companies said they will cooperate on R&D, key component development, new-energy technology, parts sourcing, international business and the operation of their manufacturing facilities.

Analysts said the move could prove a significant moment for the Chinese automotive industry, at a time when too many domestic manufacturers fight for dwindling customers.

Vehicle sales in China rose by only 3.37 percent year-on-year to 14.09 million units in the first three quarters of this year, according to the most recent market data.

Guangzhou Automobile, which is partnered with Japan's Honda and Toyota, began vehicle production under its own brand, the Trumpchi, just two years ago.

Its current two models are a medium-sized sedan and a SUV. But analysts say the company badly needs to enhance its R&D to boost own brand's sales.

Guangzhou Auto's net income dipped by 58 percent in the third quarter.

That was partly a result of a sales slide at its joint ventures with the two Japanese carmakers — due to anger over Japan's illegal "purchase" of China's Diaoyu Islands.

The decline in sales pushed the company to focus on the development of its own-brand models.

China's ninth-biggest carmaker, Chery is viewed as having built a much larger technological base than Guangzhou Auto, through some hefty investment over the past years.

However, it recently reported it had to give up some of its R&D projects and shed two of its sub-brands, due to a lack of funds and sluggish sales.

According to a statement from the companies, Anhui-based Chery will transfer its small-sized vehicle platforms and engine and transmission technology to Guangzhou Auto.