German auto giant Volkswagen AG and China’s Anhui Jianghuai Automobile Co. Ltd. have started discussing possibilities of a partnership by the establishment of a new joint venture company. The two companies signed a memorandum of understanding on long-term partnership at VW’s Wolfsburg headquarters to explore this possibility of research and development, manufacturing and sales of new energy vehicles and parts.

This deal came as Beijing is seeking to develop its nascent but growing electric car industry with incentives and other government support in a bid to boost the country’s environmental credentials and tackle crippling air pollution. For VW, on the other hand, they are using this opportunity to do right by their mistakes with the emission cheating issue last year. This partnership’s top priority would be to develop zero-emission mobility solutions.

Other than their goal, there are no immediate details about the scope of the planned agreement, although JAC expects to sign an official agreement with VW within five months.

Volkswagen already has two major joint venture partners in China, FAW Group and SAIC Motor, the maximum allowed for a foreign automaker in Chine under current regulations. The proposed joint venture is understood to have the backing of China’s premier Li Keqiang, meaning that current restrictions may be lifted if the two companies decide to go ahead with their new partnership.

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Introducing Anhui Jianghuai Automobile Co. Ltd.

JAC, based in Hefei in east China’s Anhui province, is a Chinese state-owned manufacturer of passenger vehicles and commercial vehicles with sales of close to 334,000 units in the first half of 2016. With its partnership with VW, it is expected to gain significantly.

Sales of new energy vehicles in China have been growing rapidly, with volumes exceeding 331,000 units last year, including 247,000 electric vehicles. In the first half of 2016, sales increased by 127% to 170,000 units, with JAC accounting for 9,720 of these.

JAC is obviously banking heavily on this agreement for future growth. Earlier in the year, the company announced an ambitious plan to launch up to 30 new electric vehicle models and sell a total of 2-3 million vehicles by 2025.

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