Nanjing Automobile wants to power future Rovers and MGs with engine technology developed by Malaysia's Petronas.
In July, Nanjing bought the assets of bankrupt British carmaker MG Rover, but it is unclear whether the Chinese company has the rights to use MG Rover's engine designs, which were assigned to Shanghai Automotive Industry Corp. in 2004.
An agreement with Petronas, a multinational oil and engineering group, would allow Nanjing to make cars without having to license engine technology from SAIC.
None of the carmakers could be reached for comment.
According to a Petronas press release, the Malaysian company, Nanjing, and Chinese consulting firm Brilliant Culture Group (BCG) signed a letter of intent last week. They will determine whether Petronas's E01 engine technology will work in Nanjing's cars. Then the companies would develop engine specifications to suit Nanjing's vehicle lineup.
Both Nanjing and BCG are expected to invest in facilities to manufacture the engines. No timescales, budgets and manufacturing volumes have been disclosed.
The company became the main sponsor of the Sauber Petronas Formula One team in 1995. The E01 uses technology derived from race engines, Petronas claims.
The work on the engine has been carried out at Swiss-based Sauber Petronas Engineering, in which Petronas has a 40 percent stake.
Petronas would not confirm whether the production version of the E01, which was first announced in 1998, was developed by Sauber Petronas Engineering.
The production E01 is a four-cylinder unit that, according to Petronas, has a particularly compact design, allowing it to be fitted into "various vehicle platforms."
The letter of intent calls for the production of a family of engines from 1.8 liter to 2.2 liter.
The original version of the production E01 was a 2.0-liter, 205hp unit with fully variable valve timing that met Euro 2 emissions specifications.
Petronas has not announced a more up to date specification, nor said whether the engine can comply with current Euro 4 emissions levels.