The contract manufacturer has purchased 75 per cent of Hisyn Pharmaceutical for a price of $20m and the new joint venture is already approved and operational.
Hovione said the acquisition brings it "significant additional drug substance manufacturing production capacity".
Along with 180 staff, it includes development laboratories in Shanghai and an active pharmaceutical ingredient (API) plant in nearby in Zheijiang.
Prior to the purchase Hisyn has been supplying Hovione with intermediates, but this factory will now instead be used to produce Hovione's two largest volume products.
Commenting on the deal, Miguel Calado, Hovione's chief financial officer said: "Hisyn represents an opportunity to both increase our manufacturing capacity and ensure a sustainable cost advantage".
"We find it important to provide our current customers with an assurance of competitive supply over the long run; and in addition we want to have a strong presence in new markets, such as Brazil, India and China, where price is decisive".
Hovione has been active in China for 20 years, and has a plant in Macau from which it has been processing raw materials bought in the country, as well as in its facility in Portugal.
Luis Gomes, vice president of Generics explained that the company felt that even though it had operated in China for many years, now was the right time for Hovione to acquire infrastructure in China and tap into a growing market.
"For many years we felt we'd be better off being an important client of Chinese plants through contract manufacturing deals, because there have been many joint ventures going very wrong".
Gomes said the firm is planning to invest further over the course of this year to effectively double Hisyn's current manufacturing capacity.
Hovione offers custom synthesis of APIs and regulated intermediates for oral, topical, inhalation and injectable grades, including sterile bulk.
The firm is a pioneer among its Portuguese peers in terms of its global development - a report in late 2006 by market research firm Espicom warned that Portuguese drug producers are small and need to merge or form alliances to compete at a global level, investing more in innovation and increasing their competitiveness like Hovione has done.
The Portuguese pharmaceutical market is the tenth largest in the EU-15, valued at $5.3bn at retail prices in 2006.
Market growth has decreased to around 5 per cent, with the government keen to contain reimbursement and increase generic consumption.
The country's manufacturers have a lot of catching up to do since Portuguese pharmaceutical production was estimated at €1.56bn in 2003, only one per cent of the total combined production from the EU-15 and Switzerland.