UPDATE 2-China's Zhongxing in talks with GM, FAW -sources

(Adds industry source's comments on GM, expansion)

By Fang Yan

SHANGHAI, July 24 (Reuters) - Chinese pickup truck maker Hebei Zhongxing Automobile Co is in talks with General Motors (GM.N) and major Chinese automaker FAW Group to explore opportunities for cooperation, including possible equity ties, a source close to the situation said on Thursday.

"Consolidation is inevitable in the Chinese auto market, which now has more than 100 players, and a company of Zhongxing's size makes a good takeover target or joint venture partner," the source told Reuters.

"Zhongxing is holding talks with several potential partners including FAW and GM to seek cooperative opportunities, including possible equity ties, but nothing has been decided at the moment," one of the sources said.

Zhongxing had no comment on the matter and an FAW executive declined to comment.

GM's China spokesman Henry Wong also had no direct comment on the matter.

"We are a big auto company so we are always out there looking for opportunities and in discussions with everybody around the world. I don't actually have information on discussions in China," Wong said.

Zhongxing, a second-tier player in China's auto industry but a major maker of pickups and sport-utility vehicles, expects to sell about 45,000 vehicles this year, including 15,100 overseas. It sold about 36,000 units last year, with exports at roughly 10,000 units.

EXPLORATORY TALKS

The source gave no specifics about Zhongxing's discussions with GM, which runs two ventures with China's top automaker SAIC Motor (600104.SS) making cars and minivans.

"The talks are still exploratory and the two parties are not excluding any possibilities," the source said.

An industry source also confirmed the talks with GM.

The largest U.S. carmaker is also a dominant player in the world's second-largest car market, but its China vehicle sales growth slowed to 12.7 percent in the first half of this year from 18.5 percent for all of 2007, lagging rival Volkswagen's (VOWG.DE) 23.3 percent first-half sales growth. The Volkswagen figures also included Hong Kong and Macau.

China's fragmented auto industry is badly in need of consolidation and the government hopes to establish three to five large auto groups that could compete globally.