By Soyoung Kim and Kevin Krolicki

GM approached SAIC in recent weeks with an offer to sell some of its stake in their 50-50 joint-venture that builds and markets Buick, Cadillac and Chevrolet models in China, according to the sources.

The sources declined to be identified because they were not authorized to discuss the preliminary contacts between the two companies.

Such a deal would make GM a minority partner at its decade-old flagship venture in China, Shanghai General Motors Ltd., considered to be one of the remaining crown jewels in its global operations.

The discussions between GM and SAIC are playing out against the backdrop of a push by GM to secure deep concessions from its bondholders and major union to show it can be made viable under the terms of a $13.4-billion U.S. government bailout.

GM faces a deadline of next Tuesday to submit a new restructuring plan to the U.S. government detailing the progress it has made in cutting costs and shoring up its balance sheet.

GM and SAIC had no comment. Shanghai Automotive Industry Group is the parent company of SAIC Motor, a listed unit that holds all of the vehicle assembly assets of the group.

GM UNDER PRESSURE

In addition to their passenger car tie-up, GM and SAIC have seven other joint ventures in China, including an automotive finance company modeled after GMAC and a version of GM's OnStar navigation service for the Chinese market.

In the early stages of the talks, GM signaled a willingness to consider selling other assets in China to SAIC, according to one of those with knowledge of the talks.

In July, GM had set a goal of raising up to $4 billion through asset sales, but progress on potential deals has been stalled by the global downturn in sales and tight credit.

Among the assets GM has been looking to sell are its Hummer SUV line, the Swedish brand Saab and a medium-duty truck business based in Flint, Michigan.

But a deal to sell some of GM's assets in China could upstage those deals in its size and significance at a time when a collapse in its U.S. sales has driven it to the brink of failure.

Although GM would be surrendering a claim on one of its most promising operations, a move to sell assets in China could also help insulate it against criticism that it was using U.S. taxpayer funds to subsidize business overseas, a second person the people familiar with the talks said.

GM and its joint ventures in China posted 6 percent sales growth in 2008. That was down from almost 19 percent growth the previous year but still outperformed GM's sales in its slumping home market by a wide margin.

GM's U.S. sales tumbled 23 percent in 2008, and some analysts have suggested that the automaker's uncertain financial prospects have started to weigh on its sales in China.

(Additional reporting by Yan Fang in Shanghai; Editing by Jean Yoon)