The investment, which is though to be worth several million US dollars annually to both companies, will involve about 40 engineering staff from Lenovo, with an expected similar number from Microsoft providing technical training and support.
The 50-50 joint-venture partners will share any intellectual property produced by the organizations.
It is thought the venture will focus on new consumer device technology, particularly in the mobile device market.
The companies will share a facility on the Lenovo campus in Beijing.
Microsoft chief research and strategy officer Craig Mundie said the two companies would target opportunities in the consumer and mobile markets like digital photography, digital media and the internet.
Unsurprisingly, the development will also centre on products that build on top of Microsoft platforms.
“Today's announcement signifies another step in Microsoft's continuing efforts to build stronger collaborations with local partners, and foster a flourishing innovation ecosystem in China,” Mr Mundie said.
The announcement comes on the eve of a Microsoft-hosted Government Leaders Forum in Beijing, which was due to start last Thursday and Friday.
Microsoft chairman Bill Gates will address the leaders forum, along with Mr Mundie and senior vice-president for emerging segments market development Orlando Ayala.
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