Cameron Pace Group's announcement Wednesday comes as the fast growth of China's film market is attracting Hollywood studios that are rushing to link up with local partners.
The venture with two Chinese partners will supply 3-D filming technology and production services, said Cameron and his business partner, Vince Pace. They said they are discussing possible collaboration with state broadcaster China Central Television on developing 3-D TV.
"This is an enormous untapped market that is right on the verge of the transition from 2-D to 3-D," said Cameron in an interview. "This is the best place for us to create a kind of second home."
The Chinese partners are Tianjin North Film Group, a state-owned film and television production company, and Tianjing Binhai Hi-Tech Development Group, which operates a technology park in Tianjin, a port city east of Beijing where the venture will be based.
China's growing film market, especially at a time when U.S. and European revenues are weak, has made this country the focus of the global industry's hopes for growth. Studios are announcing co-production deals and adding Chinese elements to stories to attract viewers.
China's ticket sales rose by one-third last year to $2 billion while revenue in North America, though still far larger at $10.2 billion, has fallen for two straight years.
On Tuesday, DreamWorks Animation Ltd. and local partners announced plans to make the next "Kung Fu Panda" movie in China with local partners. Walt Disney Co. said in April the third installment in its "Iron Man" franchise will be co-produced with a Chinese partner.
In addition to "Avatar," Cameron Pace Group provided 3-D technology for films including Martin Scorsese's "Hugo" and Michael Bay's "Transformers: Dark of the Moon." It has filmed tennis, golf, football and other sports for broadcast.
The China venture will provide technology and support, rather than co-producing films, said Pace, a cinematographer who worked on "Avatar," "Titanic" and other titles.
"We play a support role," said Pace. "We're there to help the expression of creativity and artistry."
The venture also will work on research, development and manufacturing of the company's equipment, Pace said.
That might lead to Chinese-developed technology being used in two planned "Avatar" sequels, Pace said. Cameron said those mostly likely will be filmed in New Zealand.
Cameron, a public booster of 3-D, said demand for its services could grow fast if CCTV and regional Chinese broadcasters adopt the format.
"We expect it to expand very rapidly, from initially maybe a handful of productions a year to, two or three years from now, we could be talking about thousands of hours of TV production," he said. "That's our goal, in any case."
Cameron's latest movie is about his seven-mile (11-kilometer) descent this year in a one-person submarine to the ocean's lowest known point, the Challenger Deep in the Pacific's Mariana Trench. He said it is due to be released in China next March or April by Tianjin North Film Group in 3-D and the big-screen Imax format.
Cameron said he is looking at possible co-production in China for the two "Avatar" sequels. He said that included examining Chinese government controls on content and the possible increase in the share of box office revenues that could be taken out of China if the project is a co-production.
"There have been some very preliminary discussions about co-production potential here in China," he said.
For the past decade, China's state-run film distributors have allowed in only 20 foreign films per year for national distribution. The foreign share of ticket sales is limited to a range of 13.5 to 17.5 percent.
In March, the government announced it will allow in an additional 14 foreign films if they are made in 3-D or Imax format. It raised the foreign share of ticket sales to 25 percent.