China has struck a deal to invest in Galileo, the European Union's space satellite navigation network.
China wants to carry out a manned space flight this year
China is already one of the biggest players in the global satellite launch industry and is making final preparations for its first manned space flight which could take place as soon as next month.
"China will help Galileo to become the major world infrastructure for the growing market for location services," said EU transport commissioner Loyola de Palacio.
China will invest 230m euros ($259m; £160m) in the Galileo satellite tracking system, roughly a fifth of the expected cost of building the 1.1bn euros network of 30 satellites.
Rivalry in space
The EU is developing Galileo to provide an alternative to the United States' Global Positioning System (GPS), which is favoured by the Pentagon.
The European Space Agency and China's Ministry of Science and Technology have also set up a joint training centre for satellite navigation based at Beijing University, was officially opened on Friday.
The joint agreement to develop Galileo covers co-operation in satellite navigation, technology, manufacturing, market development, as well as regulatory issues such as flight frequency and certification, the EU's statement said.
Eventually China's involvement in Galileo could lead to it tailoring its military as well as civilian satellite technology for use in the system, analysts believe.
"The point is that if a country opts for Galileo, it will too for defence systems that are compatible with Galileo," the Financial Times quoted an EU diplomat involved in the development of Galileo as saying.
The paper reported EU officials as saying that China was mainly interested in the top end of the Galileo system, or Public Regulated Service (PRS), which is used by the police and security services.
PRS is also expected to play a role in the development of future military co-ordination capabilities.
The United States has security worries about the development of Galileo.
GPS, like the Russian Glonass system, is a military-run network and can be downgraded or taken offline if an enemy attempts to use the data to launch guided missiles, for example.
By contrast, Galileo will be a civilian-run operation that will be guaranteed in all but the direst circumstances so services that are safety-critical - landing planes, for example - can rely on the data.