The companies have applied for regulatory clearance to establish the joint venture, the people said, declining to be identified because the deal has not been finalized. The partnership may be officially announced as early as April at the Beijing auto show, they said.

Tata Motors said in May it had shortlisted unidentified partners in China to fuel expansion in the world's largest auto market. Locally built vehicles are cheaper because they're not subject to import duties.

"It's a smart move by Tata Motors," said Juergen Maier, a Vienna-based fund manager at Raiffeisen Capital Management that oversees $1.1 billion (6.9 billion yuan) of emerging-market assets, including Tata Motors shares. "It makes sense for Tata to have local production in China as it helps reduce the prices as well as cater supply more closely to the Chinese demand."

Jin Yibo, a spokesman for Wuhu-based Chery, said he had "no information to disclose." Paul Chadderton, a Jaguar Land Rover spokesman based in Whitley, England, said there was "no news at this time" on the company's plans to produce cars in China.

China Sales

In 2011, Land Rover deliveries in China jumped 68 percent to 34,993 units, while Jaguar sales climbed 58 percent to 3,897 units, according to LMC Automotive.

Tata Motors paid $2.4 billion (15 billion yuan) in 2008 to buy the Jaguar and Land Rover brands from Ford Motor Co. and combined them into a single division.

Chery, the sixth-largest automaker in China, was founded in 1997 and began making cars in 1999. Last year, the state-owned automaker sold 634,000 vehicles, down 6 percent from 2010.