In a separate statement, Geely said its negotiations with Ford had deepened since October and that it had held "constructive" talks with Volvo's management and Swedish union and government officials.

According to reports in Swedish media, the price of the transaction will be around $2bn, less than a third of what Ford had paid for Volvo in 1999.

The accord would mark the first major inroad by a Chinese company into Europe's auto industry and would be another step in the US auto industry's retrenchment from global operations.

The move would also mark another acquisition of an auto unit by a Chinese company.

General Motors is selling its Hummer brand to construction machinery maker Sichuan Tengzhong Heavy Industrial Machinery, and China's Beijing Automotive Industry Holdings has agreed to buy some powertrain technology from GM's Swedish Saab unit.

Ford, which unlike its US rivals General Motors and Chrysler did not take US government aid to cope with falling sales and managed to avoid bankruptcy this year, had put Volvo up for sale in December 2008.

Geely, a former refrigerator parts supplier, has grown into one of China's largest private car makers since launching its auto business in 1997.