The two companies will jointly build a plant to produce lithium ion batteries in the industrial park of Chongqing's Liangjiang District, Changan said in a statement.

The two sides have yet to disclose further information about the battery plant.

Changan, which is located in Chongqing, has developed its own-brand electric, hybrid and hydrogen fuel-cell vehicles.

The company has built a production line capable of producing up to 10,000 conventional hybrids a year.

But the production line has remained idle because of slow demand. China's government offers a sales subsidy of 3,000 yuan ($455) for conventional hybrids -- a small fraction of the 50,000-yuan subsidy it offers in five cities for plug-in hybrids.

Last year, Changan sold 1,095,900 cars and micro-commercial vehicles in 2010, up 34 percent.