China's JAC Motors said on Monday it had received government approval for a $734 million joint venture with Volkswagen to produce 100,000 electric cars per year.
Volkswagen, the world's largest automaker, is also the market leader in China. It sold four million cars in the country last year but only a few hundred of them were "green" despite rapid growth in electric vehicle sales in China.
China has for years been the world's largest automotive market but also more recently became the top market for electric vehicles, helped by government purchase incentives.
JAC, or Jianghuai Automobile Group, which is based in the eastern province of Anhui, said in a filing to the Shanghai stock exchange that the partnership with VW had been green-lighted by China's top economic planning agency.
China requires that foreign automakers form joint ventures with its manufacturers.
Volkswagen already makes cars in partnership with other Chinese manufacturers.
Volkswagen's China CEO Jochem Heizmann had said during the Shanghai auto show last month that VW expects to sell around 400,000 new-energy vehicles in China in 2020.
Chinese sales of "new energy" vehicles jumped 53 percent last year to 507,000 units, fuelled by government incentives aimed at fighting chronic air pollution.
A Chinese government proposal published in September would, if finalised, require manufacturers to produce a certain percentage of clean-energy vehicles as early as 2018.