V&S, which produces the Absolut range of spirits, will work with Chinese company JianNanChun (JNC) to produce a range of baijiu drinks - a type of white spirit - in the country.
China's spirits market is currently undergoing strong growth, though remains some way behind sales of more popular products in the wine and beer sector.
To meet the potential for growth in the market, a growing number of international producers are taking an interest in local companies to help push demand.
Baijiu dominates spirits sales in China, selling around 520m 9-litre cases per year, offering a strong incentive for V&S, said Ketil Eriksen, president of the Swedish group.
"This joint venture gives us a foothold in the largest premium spirits category in the world, baijiu.
China also has the largest growth potential of all our 14 focus markets, with an extraordinary economical development in recent years."
He added baijiu volumes were ahead of China's vodka market, which totals around 497m case sales per year.
The new venture will be based in Chengdu, Sichuan, and will initially just market and distribute existing baijiu brands.
V&S will hold a controlling 51 per cent stake in the company.
Other spirits makers may watch the move closely, in view of a Swedish government plan to privatise V&S.
China is an incresingly desirable market, and this month alone has seen rivals Moët Hennesy and United Beverages pledging their commitment to meeting growing interest in the country for liquor.
Spirits sales in the country are expected to grow by about 44.6 per cent to $28.6m (€19m) in the 10 years to 2010, according to market analyst group Datamonitor .
However, spirits sales are still dwarfed by wine and beer.
Over the same period, sales of wine are estimated to grow by 68.2 per cent to $5.1bn (€3.7bn), Datamonitor predicts.
And for beer, the most popular alcoholic drink, sales are expected to have risen 75 per cent to $43bn (€31bn) in the decade up to 2010.