By Agence France-Presse
The tanker, carrying 136,000 tonnes of oil condensate, caught fire after the collision Saturday night and its crew of 30 Iranians and two Bangladeshis were missing, China's transport ministry said in a statement.
The other vessel had been damaged but "without jeopardising the safety of the ship" and all its 21 Chinese crew had been rescued, it added.
The tanker was still ablaze Sunday, with images broadcast by state television channel CCTV showing the ship in the grip of an intense fire, enveloped in clouds of black smoke.
The Panamanian-flagged 274-metre (899-foot) tanker Sanchi was operated by Iran's Glory Shipping and heading to South Korea with its cargo, the ministry said.
The accident happened about 160 nautical miles east of Shanghai.
The second vessel involved was a Hong Kong-flagged cargo ship, the CF Crystal, carrying 64,000 tonnes of grain.
"The Sanchi is still floating and continues to burn, there is oil on the sea surface; search and rescue operations are rushing and underway," the ministry said in a statement.
Chinese maritime authorities have sent eight ships for the search and rescue operation and South Korea has sent a plane and a 3,000-tonne coastguard ship to help.
"Our ship and plane have arrived at the site and are working closely with Chinese maritime authorities," a coastguard official said.
Iran's Petroleum Ministry said the tanker belongs to the National Iranian Tanker Company and was delivering its cargo to South Korea's Hanwha Total. The ship and its cargo were insured, a statement said.