GM said it will surrender 1 percent of the Shanghai General Motors joint venture to Shanghai Automotive Industries Corp. That would give SAIC 51 percent of the company.
The two automakers said they will launch a venture to manufacture and sell vehicles in India, making them partners in the world's two fastest-growing auto markets.
"By leveraging our individual assets and those of our China joint ventures, SAIC and GM are in a strong position to introduce competitive products outside China that will satisfy the needs of consumers in India and other high-potential global markets," said SAIC chairman Hu Maoyuan in a joint statement.
GM, based in Detroit, is overhauling its global operations following a restructuring in U.S. bankruptcy court.
Analysts said GM's decision to surrender control of its main China operation and share access to India was a bad sign for the largest U.S. automaker, now 60 percent owned by the U.S. government after being propped up with billions in loans from the taxpayer.
"I can only imagine it's urgent need for money," said John Bonnell, director of automotive forecasting at JD Power & Associates in Bangkok.
GM, like other global automakers, has said it wants to use India as a small car production base for export.
"We have forecasts for GM to export to Europe. Now they're going to share that export production with a partner?" said Bonnell.
GM executives told The Associated Press in June that after the Detroit-based automaker filed for Chapter 11 bankruptcy protection, regional businesses could no longer turn to their U.S. parent for funding. At the time, GM was in the midst of a $645 million expansion in India and Thailand.
GM has also run into trouble with its South Korean unit, GM Daewoo Auto & Technology Co., which saw its finances deteriorate due to a sharp drop in sales and large losses on currency hedging bets.
In October, GM pumped 491.2 billion won ($416 million) from its global operations into GM Daewoo, raising its stake to 70.1 from 50.9 percent through a rights issue that other shareholders, like the state-run Korea Development Bank, declined to participate in.
The deal with GM makes SAIC the first Chinese automaker to come to India. Analysts say the company would have to battle Indian consumer prejudice against Chinese-made goods.
Products made for China's diverse consumer market won't necessarily work in India, which remains dominated by small, affordable cars, though analysts say the company's Wuling buses could work in India.
GM itself has done a poor job at cracking the Indian auto market.
Deepesh Rathore, chief auto analyst for IHS Global Insight in New Delhi, said GM India is overstaffed, needs to build out its dealer network and invest in new models to compete with market leaders Maruti Suzuki and Hyundai.
"SAIC is a good partner. They can bring in the financial muscle," he said.
GM's sales in India rose about 10 percent last year, to 65,702 cars, but the company is still a distant fifth to Maruti Suzuki, which sold 711,818.
GM has invested over $1 billion in India, where it sells six models under the Chevrolet brand. The company's two automobile factories can churn out 225,000 cars a year, far more than it sells domestically.
JD Power forecasts that car sales in India will grow from 1.7 million in 2008 to 3.2 million in 2015, while car sales in China will surge from 8.8 million to 16.0 million over the same period.