China Eastern Airlines Corp, the nation's third largest air carrier, announced Tuesday it will set up a 3.66-billion-yuan ($540.3 million) joint venture airline company in southwest China's Yunnan province in collaboration with the local government.

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According to agreements signed by China Eastern and the province's State-owned assets watchdog, the carrier will invest 2.38 billion yuan to own 65 percent of the new venture.

China Eastern said in a statement that it will make the investment in two installments, with initial cash funding of 700 million yuan. Within three months of the new company's launch, it will again inject net assets worth 1.68 billion yuan.

The State-owned assets supervision and administration commission under the Yunnan provincial government will invest 1.28 billion yuan, including cash worth 250 million yuan, to hold the remaining 35 percent. It will make an initial investment of 100 million yuan and pay the remainder within two years of the setup of the venture.

The commission will also recommend one person as vice-chairman to sit on the new company's five-member board of directors, China Eastern said.

Yunnan has rich tourism resources, but its many mountains often pose challenges to the construction of highways and railroads, according to a report Tuesday on the website of financial news magazine Caijing.

There are 12 airports in Yunnan, and its aviation market has huge potential, Luo Zhuping, board secretary with China Eastern, told the magazine, adding that the launch of the new company will help China Eastern boost its market share in the province.

China Eastern already has set up a company in east China's Jiangsu province and another one in central China's Hubei province in similar cooperation with the local governments.