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Domestic automaker SAIC said Thursday it has scrapped plans to build a joint venture factory to produce sports utility vehicles (SUVs) with South Korea's Ssangyong Motor Co., although the two are discussing other forms of cooperation.

The companies agreed not to pursue setting up a factory in Shanghai to make sports utility vehicles, said Shanghai Automotive Industry Corp. (SAIC) spokeswoman Zhou Zheng. She emphasized that the two companies are still planning to expand in China.

Ssangyong CEO Choi Hyung-tak said Tuesday it was called off after the Chinese Government suggested a research and development center or engine plant be built alongside it. Original plans called for SAIC and Ssangyong to build a factory to make some 100,000 SUVs a year in Shanghai, South Korean media reports said. A Shanghai Daily report said the company was planning to launch two new imported Ssangyong models in the China market in May and is considering licensed manufacturing.

The switch comes as growth in demand for larger, luxury vehicles is slowing amid rising gasoline costs and tighter pollution controls. Economy models have become increasingly popular among individual buyers who are expected to be the main source of demand in years to come.