Volvo Buses and Chinese company SAIC Motors have agreed to form a joint-venture company to produce driveline systems for hybrid and electric buses.
The new company will be 60 per cent owned by SAIC and 40 per cent owned by Volvo.
To finance the new Shanghai Green Bus Drive System company, which will be based in Shanghai, China, Volvo will invest RMB40m (£3.76m) and SAIC RMB60m (£5.64m).
After securing approval from the relevant government authorities, the two plan to create a facility for the company that is scheduled to be fully operational in the fourth quarter of this year. There, the company will concentrate on assembling driveline systems, prototype manufacturing and testing.
The deal builds on an existing co-operative agreement between the two companies, which, for the past 10 years, have operated Sunwin Bus, one of the largest city-bus manufacturers in China.