PSA Peugeot Citroen, Europe’s second-largest automaker, has announced plans to develop alternative energy vehicles in a joint venture with China’s Chang’an Automobile Group.

The move comes as the world’s largest car market and the world’s most polluting country is seeing increasing demand for cars that pollute less. The two automakers will jointly make hybrid and electric vehicles in China, PSA Peugeot Citroen CEO Phillipe Varin said in Shenzhen, China. PSA is seeing an increased market for plug-in hybrid vehicles in China as government subsidies are driving up demand. Peugeot and Chang’an will also build the Citroen DS5 in Shenzhen starting from 2013.

“Slow European growth means Peugeot needs to expand in China. There are savings we must make in some parts of the world while we develop others,” Varin was quoted as saying by Bloomberg. He added savings would be made in Europe but declined to say whether the savings would include job cuts. The French automaker aims to more than double its share of the Chinese market to 8 percent in 2015 from 3.4 percent in 2010.

Peugeot’s sales rose more than 10 percent this year in China to more than 400,000 units. The company announced plans last July to invest $1.2 billion in a joint venture to produce 200,000 vehicles a year at Changan’s Shenzhen plant for Citroen and a new, shared brand that will debut in 2014.