BEIJING — In the first co-production of a multi-billion dollar franchise between Hollywood and China, Walt Disney Co. China, Marvel Studios and DMG Entertainment will co-produce ”Iron Man 3” in China.

Under the deal, DMG Entertainment will invest in the production of the third pic in the superhero franchise, manage the Chinese co-production process, and jointly produce the film in China.

”The co-production of ‘Iron Man 3’ in China is testimony to the importance of this audience to Disney and the local industry capability to deliver a blockbuster title,” said Stanley Cheung, m.d. of the Walt Disney Company, Greater China.

The China-Hollywood co-production is the biggest milestone since China finally bowed to pressure from Hollywood to allow more foreign films, increasing the quota of revenue-sharing foreign films from 20 per year to 34, of which 14 will be 3D, Imax or toons, and a profit-sharing increase from 13% to 25% for foreign film companies.

Lensing is expected to commence in May in the U.S. and begin location filming in China in late summer 2012.

Rob Steffens, Marvel Studios g.m. of operations and finance said he was confident Marvel’s stories would work in China, ”and adding a local flavor, and working with our new local partner, will enhance the appeal and relevance of our characters in China’s fast-growing film marketplace.”

”The movie will further build upon its compelling storyline, and feature the hottest A-list stars, and spectacular action, which will resonate well both globally and in China, the second largest box-office market in the world,” said DMG topper Dan Mintz.

The Chinese portion of ”Iron Man 3’s” production will run through DMG in coordination with Marvel Studios’ production and creative teams. DMG will distrib in collaboration with Disney’s China unit.

Pic, which stars Robert Downey Jr., Gwyneth Paltrow and Don Cheadle, is produced by Kevin Feige and helmed by Shane Black.

It bows in the U.S. on May 3, 2013.