Chinese private automaker Chery Automobile and Fuji Heavy Industries, owner of the Subaru brand, has agreed in principal to join hands to produce Subaru vehicles in China and are awaiting government approvals.

The Tokyo-based transportation conglomerate will set up a joint plant with Chery in Dalian, northeast China's Liaoning province.

Chery spokesperson Jin Yibo said he had "no information" concerning the deal. Subaru China also refused to comment, saying they hadn't received confirmation from headquarters.

Jin confirmed earlier this year to domestic media that Chery was in talks with Subaru, but it was uncertain at the time whether the two would reach an agreement.

But a person close to Chery said the two automakers have agreed on a number of major terms and conditions and are now awaiting approval from Chinese regulators.

The companies have decided to remain low-key on the deal for now. An official statement on the partnership will be released after the Chinese government approves the deal.

The inside source also said Fuji Heavy and Chery will invest 30 billion yen (US$366.3 million) in the Dalian plant, which will have an initial annual capacity of 50,000 units, eventually rising to 150,000.

If the deal goes through, China will become Subaru's second largest overseas production base after the United States.