The partners initially will introduce the upscale Citroen DS car line in China and launch a new brand, PSA said in a statement. 

Citroen launched its first DS car, the C3-based DS3, in Europe in March. The sporty sub-brand is partly inspired by BMW's Mini. The DS name harks back to Citroen's first DS, which launched in 1955 and became a 20th century automotive icon. 

The next car in the lineup, the DS4, goes on sale in Europe early next year. It is based on the C4 model. 

PSA said its tie-up with Changan allows the joint venture to market other vehicles under the Peugeot and Changan brands. 

The joint venture will develop cars and light commercial vehicles with an initial annual production capacity of 200,000 vehicles and engines at Shenzhen in Guangdong province, the French automaker said. 

The Shenzhen-based joint venture will renovate an existing assembly line and building a new line. The partners also will build an R&D center. 

The first vehicle will be launched in the second half of 2012. 

Initially the partners will invest 8.4 billion yuan ($1.2 billion), PSA said. 

The PSA-Changan tie-up marks the latest foreign auto expansion in a market where General Motors Co., Volkswagen AG and others are competing for dominance. 

'Good move'

Zhang Xin, an analyst with Guotai Junan Securities said: "It's a good move for PSA Peugeot, as a new venture can expand its product line and hopefully help it win more market share here." 

A link with PSA is equally beneficial for Changan, the state parent of Chongqing Changan Automobile Co., which currently operates a joint venture with Ford Motor Co. and Mazda Motor Corp., other analysts said. 

PSA already builds the Peugeot 408 and Citroen C5 sedans in China in partnership with Dongfeng Motor Group, but it lags most of its foreign rivals due in part to a limited product lineup. 

The PSA-Dongfeng venture sold 175,190 cars in the first half, just 15 percent of what GM sold during that period. But PSA has actively sought to expand its footprint in China. 

In May, sources told Reuters PSA and Dongfeng, with a combined annual auto production capacity of 450,000 units, aim to launch construction of their third assembly plant late this year.  

The new plant, which will produce 150,000 to 200,000 units a year, will begin operations in 2012.