The agreement between the Brazilian company Embraer and AVIC was signed during Chinese Premier Wen Jiabao's visit to Brazil for the Rio+20 conference last week.
Under the deal, Harbin Embraer Aircraft Industry Co. -- a joint venture between Embraer and AVIC set up in 2002 -- will finance and build the Legacy 600/650 jet in Harbin, the capital of Heilongjiang province in northeastern China.
The first Chinese-made business jet is expected to roll off the production line by the end of next year, the statement said.
Embraer has around 78 percent of China's regional airline market, the statement said. In June 2010, Embraer set up its first wholly owned subsidiary in China, the Embraer (China) Aircraft Technical Services Co., an after-sales support business.
The Brazilian manufacturer has had stiff executive jet competition from General Dynamics Corp. and Canada's Bombardier Inc. as China liberalizes its aviation and airspace regulations and the country's increasingly rich business people look to invest their money.
The statement from Embraer said the Chinese agreement is based on the potential demand of China's flourishing executive aviation market, although it gave no estimate of that demand.
But a report by Bloomberg News in February said China's business and executive jet fleet may increase to 2,470 planes by 2030 from 150 in 2010, Montreal's Bombardier said, as the nation liberalizes airspace regulations and rising wealth spurs demand.
Embraer, with headquarters in Sao Jose dos Campos, is looking to Asia as well as Africa and the Middle East to offset declining sales in Western Europe, Bloomberg reported in May.
"As the leader of China's aviation industry, AVIC will seize the opportunity to develop a platform building executive jets that will meet the demand of the global and China markets and ultimately assist China's executive aviation industry progressing to a new stage," AVIC President Tanrui Song, said at the signing agreement with Embraer.
AVIC owns around 200 companies -- 20 of them listed on stock exchanges -- and has around 500,000 employees. Total assets are nearly $78.6 billion at the official exchange rate.
"This new phase of the AVIC-Embraer partnership corroborates what has been referred to by state leaders of both countries as a model of South-South cooperation," Frederico Fleury Curado, Embraer president and chief executive officer, said.
The Chinese agreement comes as Embraer completed the first flight of its subsonic combat aircraft prototype, the A-1M. More test flights are planned before delivery of A-1M to the Brazilian air force next year.
The A-1M is an upgraded AMX International, originally produced by an Italian-Brazilian joint venture for close air support and reconnaissance missions. The AMX went out of production in 1999.
The ceremony to mark the aircraft's first flight coincided with Embraer's delivery to the Brazilian air force of the 99th and last A-29 Super Tucano, a turbo-prop light attack aircraft.