Chinese dairy giant Bright Dairy has announced it is investing $82m in South Island dairy company Synlait Milk.

Bright Dairy will own 51 per cent of a new company, which will specialise in making infant and whole milk powder for Chinese consumers.

Synlait will continue to own and operate its Synlait farms in Canterbury through a separate company.

Synlait abandoned a $150 million share float last year after a tepid response from investors.

Bright Dairy is listed on the Shanghai Stock Exchange and says it "holds the leading position in value-added consumer dairy products in China and is China's third largest dairy company by volume."

The company, a subsidiary of Bright Food Ltd, has a market capitalisation of approximately NZ$1.7 billion and reported revenues of approximately NZ$1.63 billion for the 2009 calendar year.

Synlait Milk's chief executive John Penno said work had already begun building a second large scale milk powder processing plant capable of producing high specification milk powders alongside the company's existing facility at Dunsandel near Christchurch.

This plant will be commissioned in time for the 2011/12 season, more than doubling the capacity of the site.

"Bright Dairy is an excellent partner for Synlait. This accelerates our value added strategy and is aligned with Bright Dairy's strategy of introducing a range of premium infant formula and milk powder products through its leading brands and retail distribution channels in the burgeoning eastern seaboard domestic markets of China," said Penno in a media statement

Bright Dairy's president Dr Benheng Guo said in the same statement that the investment in Synlait Milk was the company's first investment in offshore processing facilities.

"In China the market for premium products from New Zealand and Australia is growing rapidly. Synlait Milk will help Bright Dairy establish a market leading position in the infant formula and milk powder category with a planned co-branded range," he said.

"We look forward to working with Synlait's experienced management team and suppliers to bring high quality dairy products to Chinese consumers."

Penno said the deal was a major milestone for the development of the "Synlait concept" and brought to an end a lengthy process to get funding for the construction of a second production plant.