PSA Peugeot Citroen SA has been in talks with Chinese car maker Chongqing Changan Automobile Co about setting up its second venture in China to tap rapidly growing demand, people close to the deal said.

A company executive from Changan, which also partners with Ford, Mazda and Suzuki, denied earlier media reports saying the joint venture would be formed after the Lunar New Year holiday which falls on February 14. No financial details were unveiled.

Since early 1990s, Peugeot-Citroen has cooperated with Dongfeng Motor Corp, China's third-biggest auto group, to make its cars under the Citroen and Peugeot nameplates.

The French car maker has been looking for a second partner since 2004 to enhance competitiveness as it lagged behind major international rivals, including General Motors and Volkswagen, in the rapidly growing China market.

In June 2007, PSA and a smaller Chinese sport utility vehicle producer, Hafei Auto, signed a memorandum of understanding to start a feasibility study on a 50-50 joint venture. Hafei Auto was merged into Changan last year.

"PSA has made slow progress in China, blaming limited products and an unsuccessful partnership," said Li Chunbo, an auto analyst of Citic Securities Co. "Having a new and strong partner would be necessary."

Last year, PSA's Chinese sales jumped 52 percent to 272,000 cars, making China its second-largest market globally. Meanwhile, GM sold 1.83 million units, and VW sold 1.4 million units in China.

Changan Auto Group sold 1.86 million units last year, including 820,000 self-owned cars and minivans, and nearly 500,000 cars under its partners' brands. It aims to sell 2.2 million units this year.