Indian carmaker Mahindra & Mahindra and China’s Shaanxi Automobile Group have reportedly agreed to form a $3 billion joint venture to build a car factory in India, insiders told Reuters. However, Mahindra has denied the report, calling it “baseless and false.”

Mahindra would hold the majority of shares in the planned company, insiders with direct knowledge said. The company is to be located in Gujarat, the home state of Prime Minister Narendra Modi.

Despite the official denial, Mahindra’s shares rose 3.1% before closing 2.5% higher on the Bombay Stock Exchange. The aim of the project is to set up an export-oriented, integrated manufacturing center for assembled cars, engines and car batteries. Regulatory approval from the Indian government has been obtained for this Chinese investment.

Attempts to contact the Shaanxi Automobile Group and the relevant Indian ministries were initially unsuccessful. Since 2020, New Delhi has tightened restrictions on Chinese investments following border conflicts, leading to delays and cancellations of various projects.

The ongoing scrutiny of Chinese investments could change as India seeks to ease restrictions in non-sensitive sectors such as solar panel and battery manufacturing. India’s Finance Minister Nirmala Sitharaman has hinted that it is possible to encourage foreign direct investment from China to boost India’s exports.

(With contributions from agencies.)