French carmaker PSA Peugeot and China's Chang'an Automotive Group, have reached an initial agreement to set up a joint venture. The deal comes after just five months of talks, as Peugeot speeds up its expansion into the world's largest auto market.

Peugeot is playing catch-up.

Peugeot and Chang'an will each hold a 50 percent stake in the joint venture, to make light commercial vehicles and cars.

Peugeot, which already operates a car venture with Dongfeng Motor Group, lags behind larger rivals General Motors and Volkswagen AG.

The latest deal, if it goes ahead as planned, will enable it to secure a foothold in China's fast growing light commercial vehicle market, where GM and Ford Motors already have a head start.

It will also improve Chang'an's competitiveness - the parent of Chongqing Chang'an Automobile - which runs a three-way tie up with Ford and Mazda Motors.

Xu Jun, ASS. President, China Chang’an Automotive, said, " We are still in discussions over the financial details of the venture. Chang'an and Peugeot have complementary advantages, so we can work together in exploring China and the world's market. "

China, which eclipsed the United States as the world's largest auto market last year, has been a bright spot amid the global industry downturn.