Advanced Micro Devices Inc. has reached a deal to allow a new joint venture in China to produce chips there using proprietary technology long considered the crown jewel of AMD and its rival Intel Corp.

The move, which could spur opposition from Intel, underscores AMD’s pressing search for new revenue following its long-running struggle in the microprocessor market. It also reflects China’s high-profile quest to become less dependent on foreign technology, using investments and acquisitions that at times have prompted U.S....