The discussions come as privately held Getrag, one of the world's largest automotive transmission manufacturers, seeks a strategic partner to provide fresh capital for the company, these people said.

A 30 percent stake in Getrag would be worth less than 500 million euros, or 4.6 billion yuan, one of these people said.

U.S. auto supplier Dana Holding Corp. acquired a 30 percent stake in Getrag in 2000 from Germany's Hagenmeyer family but sold it back to the family in 2007 after Dana fell into Chapter 11 bankruptcy.

The Hagenmeyer family, which owns the entire company, tried to sell the 30 percent stake to other strategic partners after Dana's exit, including Canadian auto supplier Magna International Inc., these people said. The talks with Magna a few years ago fell apart due to differences over prices, they said.

If the latest discussions with Dongfeng lead to a transaction, it would mark the first time that a Chinese company has bought into the German auto sector.

Like any other deal negotiations, the discussions between Dongfeng and Getrag could still fall apart, these people cautioned.

The people asked not to be identified because the discussions are confidential. A Dongfeng spokesperson in China said he had no knowledge of the matter and declined to comment. Getrag representatives in Germany declined to comment.

Chinese automakers and parts suppliers are looking for advanced automotive assets overseas to transform themselves from low-cost manufacturers into leading technology providers.

Transmission technology such as Getrag's is among the most sought-after assets by Chinese auto companies, people familiar with the matter say.

Chinese companies also have emerged as serious buyers in the global auto industry. They can often afford to pay more since they have a big and fast-growing customer base in China, the world's largest auto market.

Pacific Century Motors, a partnership which includes the investment unit of Beijing's municipal government, bought General Motors Co.'s Nexteer steering business last year for an estimated 3 billion yuan.

Getrag had revenue of about 24 billion yuan in 2010 and posted a small profit after losses in the previous two years. Getrag expects to improve profitability substantially this year.