PSA Peugeot Citroen, Europe's second-biggest carmaker, will develop alternative energy vehicles in China in a venture with Changan Automobile Group to meet increasing demand for cleaner cars.

The automakers will also explore jointly making hybrid and electric vehicles in China, Peugeot Chief Executive Philippe Varin said yesterday in Shenzhen, south China's Guangdong Province, where a founding ceremony of the venture took place.

Paris-based Peugeot is following in the footsteps of rivals, including General Motors, Daimler and Nissan, in planning to introduce so-called plug-in hybrid vehicles in China, where state subsidies are driving up demand.

Peugeot and Changan will also start making the luxury Citroen DS 5 model in Shenzhen from 2013 as demand in Europe weakens, Varin said.

"Slow European growth means Peugeot needs to expand in China," he said. "There are savings we must make in some parts of the world while we develop others."

He said there will be savings in Europe but declined to say whether job will be cut.

Peugeot, which expects to introduce the first car under its China-only brand in 2014, has said it will more than double its share of the world's biggest auto market to 8 percent in 2015 from 3.4 percent last year. Its China sales rose more than 10 percent this year to more than 400,000 units, said Gregoire Olivier, Peugeot's chief executive of Asian operations.

Peugeot announced plans in July 2010 to invest US$1.2 billion in a 50-50 joint venture to produce 200,000 vehicles a year for Citroen and a new shared brand. The partnership, which would be in addition to Peugeot's venture with Dongfeng Motor Group, received Chinese government approval in July. Changan Automobile is the parent of Chongqing Changan Automobile, Ford's partner in China.

Currently, buyers of energy-efficient cars in Shanghai, Shenzhen and four other Chinese cities qualify for a 60,000 yuan (US$9,441) subsidy.