SABIC, which has not previously commented on the project, has been looking at investing in China's fast-expanding petrochemical sector for years but has yet to land a concrete deal.

Asked how much the deal would be worth, SABIC chief executive Mohamed al-Mady told reporters: "Any deal (in China) these days is worth more than $1 billion."

"We are talking with China Petrochemical though a deal hasn't materialised yet," he said. "It could be in the region of $1 billion.''

Al-Mady said negotiations were under way, but declined to give a timeframe. "Deals in China are not concluded in days," he said.

SABIC is already working on a $5 billion petrochemicals project in Dalian, northeast China, with local building materials maker Dalian Shide Group. The two companies plan to build plants with capacity to produce 1.3 million metric tons a year of ethylene and chemicals, al-Mady said in 2004.

Last year Beijing gave Sinopec, China's top refiner and petrochemicals producer, approval to build a $3.1 billion project that included the ethylene plant and a 250,000 barrel-per-day (bpd) refinery in the northern city of Tianjin by 2008.

SABIC expressed interest in the Tianjin project more than a year ago, but neither party pursued it in earnest before the investment won government approval.

China announced that talks would resume after Saudi King Abdullah's visit to Beijing this year.

In 2004, SABIC also discussed building a similar-sized petrochemical plant in the northeast Chinese city of Dalian with a private Chinese company.

Al-Mady said the Dalian project was still in the pipeline, and SABIC was looking to turn its office in China into a company.

SABIC, the largest listed company in the Gulf Arab region, is 70 percent-owned by the government of Saudi Arabia and 30 percent by private investors in Saudi Arabia and other countries of the Gulf Cooperation Council.