The exercise codenamed "YouYi-IV" (Friendship-IV) began near Jhelum yesterday and will last two weeks.
The manoeuvres are the fourth in a series that began in 2004 and brigade-level forces from both countries are participating in the drill.
In a statement, the Chinese Defence Ministry said the joint drill is "aimed at enhancing the capability of the two militaries to handle non-traditional security threats and launch joint anti-terror activities".
The statement said the exercise was being held under an annual exchange plan and was not directed against any country.
"This is the first joint drill of the two armies this year and is not targeted at any third nation," the Chinese statement said.
The Pakistan Army became the first foreign force to conduct an exercise on Chinese soil under the YouYi series.
The two countries had earlier conducted two exercises in China and one in Pakistan.
The Pakistani military said in a statement that the exercise was aimed at the "mutual exchange of experience and information through a comprehensive training programme in real time".
"The Chinese Army, being well equipped and highly technical in nature, is very meticulous, keen and equally professional in their approach.
"During the last joint exercise in China, they demonstrated high sense of professionalism and friendship towards Pakistan," the statement said.
"These exercises were mandated to boost existing professional relationship between the two friendly armies... Pakistan and China enjoy extremely close and brotherly relations since their inception, which have matured and strengthened over the years.
"The forthcoming joint military exercise YouYi-IV will certainly pave the way for further cementing the existing bilateral relations between the two countries," the statement added.
The senior military leadership of both sides will attend the exercise.
"YouYi-IV exercise will be a true manifestation to a famous Chinese phrase 'Pakistan-China friendship is higher than the mountains and deeper than oceans'," the statement said.
