Chinese automakers might not get regulatory approval for capacity expansion unless they first agree to take over a domestic rival, the Shanghai Securities News reported on Friday.

Beijing has been encouraging acquisitions among the auto industry's more than 100 players, aiming to create a few national champions able to compete with global giants at home and overseas.

Under the latest version of policy guidelines expected to come out before the end of March, the government will in principle prohibit new vehicle projects and greenfield capacity expansion unless automakers first take control of a domestic peer, the newspaper said, citing unnamed sources.

Those that arrange merger deals, meanwhile, would be rewarded with tax, credit and other incentives, it said without elaborating.

Combined sales of China's top 10 automakers came to 11.9 million units in 2009, equivalent to 87 percent of total sales that year, official data showed. Remaining players' annual sales amounted to fewer than 10,000 units each.

SAIC Motor Corp, China's biggest automaker and a partner with General Motors and Volkswagen AG, sold 2.7 million vehicles in 2009, less than a third of Toyota Motor's tally of 8.27 million units for that year.

Beijing wants to cut the number of major Chinese auto groups to 10 or fewer from 14 now, and ultimately wants two or three mega-producers with annual output of more than 2 million vehicles each.

With a push from the central government, several second-tier automakers, such as Guangzhou Automobile and Beijing Automotive Industry Holding Corp, have been seeking merger targets, hoping to squeeze into a select few national players.