US auto giant General Motors and China's Shanghai Automotive Industry Corp signed a deal Wednesday that will see them work together on producing new engine and transmission technology.

Hu Maoyuan, chairman of SAIC Motor, China's leading automaker by sales, called the deal a milestone that would see the two companies share key intellectual property and help SAIC move up the industry's value chain.

"This is the first time a Chinese automaker has collaborated with a leading international group to develop a core technology while sharing intellectual property on a global scale," Hu said at a signing ceremony in Shanghai.

"This boosts SAIC's efforts to master the core technology and marks movement to the higher end of the value chain," he added.

Engineers and researchers in Detroit and their joint venture's research centre in Shanghai will develop a fuel-efficient engine and front wheel drive transmission, GM Vice Chairman of Global Products Operations Tom Stephens said.

The transmission would be 10 percent more fuel-efficient than conventional six-speed automatic transmissions and when combined, the engine and transmission could cut carbon dioxide emissions by a fifth compared to other cars on sale in China, Stephens said.

Their joint venture, Shanghai GM, has spent more than one billion dollars in power train -- engine and transmission -- development and production since 2008, Stephens said.

"This really underscores the importance our companies have placed on accelerating the introduction of cleaner, more energy-efficient power trains right here in China," Stephens said.

Neither GM nor SAIC said how much additional investment the new agreement would require, but noted their collaboration would increase efficiency and reduce costs.

The new technology would likely reach the market by 2012 at the earliest, GM spokesman Michael Albano said.

Under the agreement, SAIC will be able to use the technology in its own car brands such as Roewe, Albano said.

George Yin, a Beijing-based auto analyst at Bocom International, said the move would help SAIC take advantage of Beijing's efforts to boost the green car sector and reduce production costs, particularly for its self-owned brands.

"The main imports by domestic auto companies are transmissions and engines as home-developed technologies still lag far behind foreign technologies. The tie-up with GM on power trains will boost SAIC's technologies," Yin told AFP.

"So far SAIC's star products are mainly made by the joint ventures... The cooperation will pave the way for making them domestically and help it improve technologies and reduce costs."

SAIC jumped 4.1 percent to close at 16.1 yuan in Shanghai, compared with a 0.2 percent decline in the benchmark index.

GM is the market leader in China, which overtook the United States for the first time last year to become the world's biggest auto market.

The US automaker and its joint venture partners expect to sell more than two million cars in the country this year after selling a record 1.83 million in 2009.

In a sign of China's importance to GM, the company based its international operations in Shanghai after a 50-billion-dollar restructuring that led to mass layoffs, plant closures and billions of dollars in debt wiped out.

The automaker, now 61 percent-owned by the US government, is reportedly close to filing for an initial public offering after revenue swelled to 33 billion dollars in the second quarter, a third up on the same period last year.