China’s Shanghai Automotive Industry Corp. and Nanjing Automotive Corp. sign a letter of intent toward forming a “complete union” via business cooperation and restructuring.

The plan to form a new automotive giant coincides with the Chinese government’s desire to consolidate the auto industry in order to form fewer but stronger companies capable of competing worldwide.

The two auto makers say there remains much uncertainty surrounding the plan, because the government, company boards and shareholders would have to approve any transfer of assets or equity stakes.

Shanghai is China’s largest car maker. In addition to building its own model, the midsize Rowe sedan, based on former Rover Group technology, Shanghai is a partner in two large, separate joint ventures with Volkswagen AG and General Motors Corp.

Nanjing acquired the rights to the MG brand and technology from Rover in 2005 and launched the first China-made MG sports cars in March. It currently has a JV with Fiat SpA, but the partnership has been on shaky footing of late and its future appears uncertain.