Employees of the Chinese carmaker Chery Automobile Co. work at the assembly line in Wuhu, China's Central east province of Anhui May 16, 2007. [Reuters]

China's Chery Automobile Co. said on Wednesday a framework deal with DaimlerChrysler AG to build Chrysler-branded cars was still proceeding, denying a German paper report it had been halted.

Chery, which reached an initial agreement with Chrysler last year, wants to re-examine the deal, Handelsblatt said this week, citing a senior Chery executive.

The decision, the paper said, came after DaimlerChrysler agreed last week to sell its money-losing Chrysler Group to private equity firm Cerberus Capital Management LP in a $7.41 billion deal.

But a Chery spokesman said on Wednesday that the newspaper had misquoted his colleague and that the earlier deal with Chrysler Group was progressing.

Under the agreement unveiled in late December, Chery would build small cars under the Chrysler badge for sale in Europe and the U.S., paving the way for the ambitious Chinese auto maker to sell its own-brand vehicles in mature markets eventually.

The Chery spokesman declined to elaborate on the status of that deal, which still needs Chinese government approval, or confirm whether Chery wants to renegotiate the terms with Chrysler's new owner.

"I don't think the deal will be called off," said George Magliano, director of North American auto industry research at Global Insight.

"There's a lot riding for both Chery and Chrysler in this," he said, noting that this would be the quickest and safest way for the Chinese auto maker to tap the U.S. market, while Chrysler needed a small car.

Chery, a mid-sized but fast-growing player in east China, had made some inroads in emerging markets in Southeast Asia, Africa and the Middle East, where pricing remains a critical factor to push sales.

However, it has had little success so far in breaking into mature markets in the United States or Europe.