Caterpillar Inc and Navistar International Corp are in talks with Anhui Jianghuai Automobile Co to set up a truck venture in the country, a source familiar with the matter said on Friday.
"The parties have basically agreed on the framework for a 50-50 venture to make heavy trucks and engines, but have yet to iron out the details," the source said.
A Jianghuai spokesman declined to comment, while Caterpillar and Navistar executives could not be reached.
Analysts said the JV, to be hopefully concluded before the end of the year, will give the US industrial giants a chance to tap the potential of China's heavy truck segment, which is getting a lift from Beijing's economic stimulus package.
Unlike General Motors and Volkswagen, which have long become household names in China, foreign truck giants have made little headway over the years as their upscale models are too expensive for local trucking service operators.
"Foreign truck makers face a much bigger challenge in China comparatively because an Audi is a status symbol, while a Volvo truck can only push up trucking firms operating cost," said Chen Qiaoning, an industry analyst with ABN AMRO TEDA Fund Management.
The availability of locally made trucks, priced at one-third or less than imported models and considered more suitable for bumpy roads in land-locked inland China, were also cited as major hurdles.
But there have been some early signs that foreign truck makers are staging a comeback with some landmark deals unveiled this year, including MAN's $787-million deal to take 25 percent of Sinotruk and Daimler AG's tie-up with Beiqi Foton Motor Co.
Though local brands made by Dongfeng Motor Group, FAW Group may continue to dominate China's truck market, demand for upscale trucks is expected to pick up over the years as Beijing raises vehicle emission standards further.
Heavy truck sales in China rose 11.75 percent to 541,256 units in 2008, more than double the level in 2003, according to data provided by Nomura Securities.