Two major Chinese auto manufacturers said they have formed a strategic alliance, as China seeks to consolidate the industry and create national champions able to better compete with foreign players.

China is the world's largest auto market but foreign brands dominate, helped by better brand recognition and a technological edge.

Guangzhou Automobile Group Co. (GAC) and Chery Automobile Co. signed the broad cooperation agreement in Beijing on Tuesday, according to a joint statement.

GAC was the country's sixth-largest automaker by sales for the first nine months of this year, while Chery ranked ninth, according to the China Association of Automobile Manufacturers.

The two would cooperate on developing entire vehicles, powertrains and other key components, as well as "new energy" vehicles, the statement said, claiming it would be the first such union in the domestic industry.

China has made the development of new energy vehicles, such as fully electric cars and hybrids, a priority but customers are lacking.

GAC, based in the southern city of Guangzhou, and Chery, from the eastern province of Anhui, would also cooperate in areas such as international operations and production management, the statement said, but gave no details.

The companies said the alliance would make them more competitive and allow them to pool resources, which could help cut costs.

"This will contribute to a higher level of core competitiveness for China's auto industry and the development of the entire auto industry," they said.

Chery -- known for its small, low-priced cars -- has just received approval for a joint venture with Jaguar Land Rover, owned by India's Tata Motors, to make and sell luxury cars in China.

GAC has joint ventures with a number of foreign companies, including Japan's Honda and Toyota, as well as Italy's Fiat.

The move came amid a slowdown in China's auto industry over the last two years. China's auto sales rose just 2.5 percent to 18.51 million units last year, compared with an annual increase of more than 32 percent in 2010.

In the first nine months of this year, the country's vehicle sales rose 3.4 percent year-on-year to 14.1 million units.

Sales have been weak this year as China's economy has slowed and a territorial row with Japan hurt demand for Japanese-brand vehicles, though other brands have moved to grab their market share.