Fonterra's planned multi-million dollar joint venture with a leading Chinese baby food manufacturer has gained the approval of China's Ministry of Commerce.
The dairy co-operative plans to invest about $615 million for a stake of up to 20 percent in the company Beingmate to meet China's growing demand for infant formula.
Last August, the proposed deal led the international ratings agency Standard and Poor's to cut Fonterra's credit rating from an A+ to an A, saying it showed a more aggressive appetite for risk.
Fonterra said there were more regulatory hurdles to clear before it could proceed to a partial tender offer.
Beingmate currently has a 10 percent share in China's infant formula market.