Fiat SpA is close to closing a difficult deal with partners Nanjing Automotive Corp. and Chery Automobile Co. Ltd. to assemble and sell Alfa Romeo models in China, well-placed Chinese sources say.

Fiat wants Chery to assemble Alfa Romeos, but its joint venture with Nanjing is creating a bit of a roadblock. One way to clear that hurdle would be for Fiat to sell its 50% stake in Fiat assembler Nanjing-Fiat Automotive Co. Ltd. – with Nanjing’s approval – to Chery, a plan said to be under consideration.

Such a move would clear the way for Fiat to restart in China with a younger, more dynamic partner.

Although the new Fiat Linea and Bravo, presented alongside the Palio and Perla at the recent Auto Shanghai 2007, made quite a strong impression on show-goers, it is very unlikely those cars will make money in China, even if they are assembled locally using low-cost labor.

That’s why Fiat may be ready to turn its attention to the higher-margin Alfa brand in China.

Sources say starting in 2009, the expected JV could be building 30,000-35,000 Alfa Romeo cars per year for sale locally and in export markets, possibly including Italy.

An official announcement is expected by the end of next month. Fiat CEO Sergio Marchionne on several occasions has said Fiat has more collaboration deals in the making with a major one to be announced by June.