French Government officials are in China for talks with Dongfeng that could see an agreement signed within weeks, according to a report published by Reuters this week.
Under the terms of the document, Dongfeng and the French Government would each contribute around 1.5 billion euros for a 20 to 30 per cent stake in the car maker.
If the deal goes ahead it would mean the Peugeot family would lose control of the company with a significant dilution of its 25.4 per cent stake and 38.1 per cent voting rights.
The three billion euro cash injection would amount to around 68 per cent of the French car maker’s 4.39 billion euro market capitalisation.
However, it would only equate to about 40 per cent of the new share register and also dilute the existing seven per cent stake held by General Motors.
Peugeot desperately needs the cash to help it expand outside Europe, which is sliding towards its sixth straight year of decline.
The French car maker reported a first-half operating loss of 510 million euros ($726 million) and as a result, is cutting 11,200 French jobs, as well as closing a factory outside Paris in a bid to reduce operating costs by 50 per cent in 2013.