China's Inner Mongolia Yili Industrial Group has announced a deal to buy New Zealand's Oceania Dairy Group and plans to build an infant formula plant in the country, according to reports.

The deal to build the plant and acquire Oceania Dairy will cost Yili Industrial Group NZD214m (US$174m), according to the China Daily newspaper, which cited a Shanghai Stock Exchange statement. The milk powder plant is set to be operational by June 2014.

Shares in the Chinese group are up by 10% since news of the deal broke.

It is thought Yili intends to export "significant" amounts of milk powder back to China, which is committed via a bilateral trade deal to scrapping tariffs on New Zealand dairy imports by 2020.

In 2010, China's Bright Food Group bought a majority stake in New Zealand milk processor Synlait for US$60m.