Production will take place at Sun's existing mill in Yanzhou City in the Shandong Province.
The deal is expected to be signed in early April. It will use two coated paperboard machines located in Yanzhou, and require the construction of a third, which is expected to be completed by late 2007.
IP's investment in the project is forecast to be in the region of 80m ($140m).
"Expanding coated board production in China with Sun is core to our strategy for serving our global customer base," said IP chairman and chief executive John Faraci.
"As our customers expand globally into China and other emerging markets, we will be there to help them grow."
Coated paperboard is used in the production of a wide variety of consumer packaging products, including folding cartons, mainly for tobacco packaging.
IP currently produces coated board in the US, Poland, Russia.
IP to link with Sun for coated board project
International Paper (IP) has agreed to enter into a joint venture project with Shandong Sun Paper to produce coated board.
