Mainboard-listed Guorun Holdings will form a 200 million yuan (about HK$189.44 million) joint venture with China's only privately owned carmaker, Zhejiang Geely Automobiles.
The venture, Zhejiang Geely Guorun Automobile, will be based in the port city of Ningbo, Zhejiang.
It will produce and sell two models of saloon cars - Merrie Car and Geely Ulion - for China's low-end market.
Guorun is the second Hong Kong-listed company not previously involved in the industry to tap China's fast-growing car market so far this year.
In January, rechargeable battery maker BYD acquired a controlling stake in a state-owned carmaker.
Domestic and foreign-invested carmakers are expanding production capacity to capitalise on what is seen as a lucrative market, with demand registering robust growth. China's vehicle sales rose 37.1 per cent to 3.24 million units last year, with car sales surging 56 per cent to 1.12 million units.