Honda and Nissan expect big benefits from their potential merger to create the world's third-largest auto group but intense competition from China raises questions about whether they can make it work in time.

The proposed deal aims to unify operations under a joint holding company, led by Honda, while maintaining the distinct identities of each brand, according to Honda's president, Toshihiro Mibe. If finalized, the merger would position the combined entity to better compete with market leaders Toyota and Volkswagen.

Honda and Nissan have officially confirmed rumors that they're pursuing a merger, the companies wrote in a joint press release.