Italian auto maker Fiat (FIA.MI) has agreed a 50-50 joint venture deal with China's Guangzhou Automobile Industry Group to produce car engines in China.
Production will start in the second half of 2011. The deal was signed by Fiat's CEO Sergio Marchionne and Chinese officials in Rome.
Fiat, which has just taken a 20 percent stake in U.S. auto maker Chrysler, has long sought a strong partner in China, where car sales are booming in contrast to slack demand in Europe and the United States.
It pulled out of a joint venture with Nanjing Automotive in 2007 and then in March 2009, a planned venture with Chery Automobile Co was postponed by the Chinese company.