Changan, one of China's top state-owned automakers, lags behind Chinese rivals in the race to develop their own domestic brands. Changan makes the Focus, Mondeo, Fiesta and other Ford models in a three-way joint venture with the U.S. automaker and Mazda Motor Corp.

Access to Ford's technology could raise Changan's profile and put it on par with its domestic rivals. And it could pave the way for more deals in years to come, sources said.

"Ford CEO Alan Mulally met Changan Chairman Xu Liuping during his trip to China in March. They had in-depth talks on ways to bring their cooperation to the next level," one source with direct knowledge of the matter told Reuters.

The partners are seriously considering one proposal to let Changan produce a mid-sized sedan based on a Ford platform in its own assembly plant in Nanjing, said a second source who was briefed on the matter.

The sedan would be sold under the Changan brand but priced below the comparable Ford model to avoid direct competition. Ford would get a sizeable share of the revenues, both sources said.

It is unclear at this stage which of Ford's car models will be made at Changan's Nanjing plant.

A Changan spokesman declined to comment, while Ford China spokesman Craig Von Essen called it "market speculation."

Give and take

The partnership between General Motors Co. and SAIC Motor Corp. has long been touted as the most successful tie-up in the Chinese auto industry.

Ford, a relatively latecomer to China, is looking at options to expand its partnership with Changan Auto beyond the terms of the current joint venture. 

"The Changan deal may not add much value to Ford's only brand in the short term, but it could be the first step toward a wider and deeper relationship like GM and SAIC," said Huang Zherui, an analyst with global industry consultancy CSM Worldwide.

Currently, Changan has been competing mostly with domestic rivals in the lower-priced car segment, leaving upscale product segments to international models like the Honda Accord, Toyota Camry and Volkswagen Passat.