Under the deal, JFE will pay 689 million yuan ($98 million) for a 50 percent stake in Baosteel Special Steel Shaoguan Co Ltd (BSSS), a unit of China Baowu affiliate Sgis Songshan Co Ltd (SGIS), SGIS said in a Shenzhen Stock Exchange filing.

SGIS put the stake up for sale in early October.

In a separate statement, JFE, Japan's second-biggest steelmaker, said it had been looking to start production in China of high-grade specialty bar steel to supply China-based firms, having previously relied on exports from Japan.

"BSSS has a proven record of producing and selling specialty bar steel in China," JFE said. It did not give a price for deal. The company was not immediately available for comment.

"It is no doubt a good opportunity for Chinese steelmakers to benefit from state-of-the-art technology from JFE," said Kevin Bai, an analyst at CRU.

"This move is likely to reduce import dependence on certain grade of special bar steel from Japan," he added.

The planned joint-venture, named BaoWu JFE Special Steel Co Ltd, is aiming for annual capacity of 1.1 million tonnes of specialty bar steel and will be based at Shaoguan, in China's southern province Guangdong, JFE said.

BSSS said the deal was still pending some regulatory approvals.

(Reporting by Min Zhang and Dominique Patton; editing by Richard Pullin)