French carmaker Renault signed a $1.3 billion joint venture agreement with China's Dongfeng Monday, finally ending a decade without a manufacturing presence in the world's biggest car market.
Renault CEO Carlos Ghosn described the project as a "strategic alliance".
"China has the biggest growth potential in the world," he said, adding: "Dongfeng has paramount knowledge of the Chinese market."
There were many opportunities in China, especially in developing electric vehicles, he said.
"This project is about exploring new frontiers. The challenge is big but we are ready and well-prepared."
The joint venture in Wuhan, in the central province of Hubei, is expected to start production in 2016 and will have an initial capacity of 150,000 vehicles a year.
Renault was the only global top 10 carmaker not to have a production plant in China.
It already has a partnership alliance with Nissan, and is the Japanese firm's biggest shareholder.
Dongfeng -- China's second-biggest carmaker, with sales of 3.08 million vehicles in 2012 -- has existing joint ventures with both Nissan and Renault's troubled French rival Peugeot.
But analysts say Nissan's sales are hit when diplomatic tensions mount between Beijing and Tokyo.
"I hope we're going to see a new success with Dongfeng-Renault," said the Chinese firm's president Xu Ping, adding that it "will help us to go global".
The project with Renault has been a decade in the making, after a previous unsuccessful joint venture by the French firm in China.
Renault began operations with China Space Sanjiang Group in 1993 to manufacture the Traffic minibus, but production stopped in 2003. Dongfeng and Renault have been in talks since then.
Total auto sales in China rose 4.3 percent year-on-year in 2012 to 19.31 million, and surpassed that figure in just the first 11 months of this year.