China's Dongfeng in talks to buy stake in PSA Peugeot Citroen

SHANGHAI (AFP) - China's second biggest automaker has held talks about buying a stake in troubled French car firm PSA Peugeot Citroen, a state-backed newspaper said on Wednesday.

Thierry Peugeot, chairman of Peugeot's supervisory board, had "pinned his hopes" on Dongfeng Motor, which already has a joint venture with the group, the 21st Century Business Herald said.

Dongfeng spokesman Zhou Mi declined to comment. "We have noticed some media reports but we won't comment on this issue," he told AFP.

A China-based spokeswoman for PSA also declined to comment, describing the reports as "rumours".

PSA is struggling financially as the European auto market has slumped due to the sovereign debt crisis.

US auto giant General Motors last month denied rumours it would inject more funds into PSA, after previously investing US$400 million (S$509 million).

The Chinese newspaper quoted two unnamed sources as saying discussions had taken place between Dongfeng and PSA, but it was unclear if a deal could be reached.

"Both parties have been in contact for a period of time, but the content of the discussions is very complicated and the progress is slow. Currently there's no sign indicating whether this issue can be finally concluded," one said.

Another source said: "Currently, the acquisition price hasn't been decided.

Besides that, the stake acquisition plan still needs approvals from the boards of both parties." PSA managing board chairman Philippe Varin was in China on Tuesday, opening a new plant for joint venture Dongfeng Peugeot Citroen Automobile.

The factory in the central city of Wuhan will have an annual production capacity of 300,000 vehicles.