Moët Hennessy has signed a joint-veture deal to produce a high-end red wine inside China.

The wine and spirits division of France's LVMH has signed a tie-up deal with Chinese wine group VATS to build a winery in the mountainous Yunnan province of south-west China. The two plan to produce a top red wine within five years.

"The partnership with VATS is a new step in our long-term commitment in China," said Moët Hennessy's CEO, Christophe Navarre. It is also another sign that domestically produced wine will provide stiffer competition to imports in China's emerging wine sector.

Under the name of Moët Hennessy Shangri-La (Deqin) Winery Company, the two firms will establish a 30-hectare vineyard at 2,400 metres above sea level. The French group will send its own winemakers to watch over the site's progress. 

It is the third major deal for Moët Hennessy in China. It already owns Chinese white spirits brand Wenjun. Last year, the firm said it would produce a premium sparkling wine in Ningxia.