Baoshan Iron and Steel Co and SAIC Motor Corp plan to set up a laboratory to research new steel products to reduce vehicle weight.

Chinese cars are now 8 to 10% heavier than their overseas competitors models while commercial vehicles are more than 10% heavier, said Yang Shuyi, a senior engineer at SAIC, China's largest auto maker.

The weight of Chinese cars should be reduced by 30 to 35% by 2020 from 2005's level, and that could lead to a 20 to 25% reduction in average fuel consumption per car, Yang said.

Under the deal, both Shanghai-based firms will jointly advance the development and application of technologies that can make auto steel thinner and stronger.

New-energy cars, whose battery will add weight, also makes it urgent to reduce the weight.