The Mi AI speaker costs 299 yuan ($44) less than the $349 for Apple's HomePod and $179.99 for the Amazon Echo.
It's a white tall speaker with Xiaomi's "Mi" branding on it and contains six microphones in order to hear a user no matter which side of the device they are standing.
The speaker employs artificial intelligence that allows users to speak to it. Xiaomi said that users can stream music or radio stations, and the speaker acts as a personal assistant able to provide information such as weather and news.
Xiaomi is releasing the device in August in China through a beta program where 1,000 recruited users will pay 1 yuan each to get a speaker. Through speaking to it, the users will help train the smart speaker. This is how voice assistants like Amazon's Alexa get smarter. It requires data in the form of people talking to it.
The start-up, which has been dubbed "China's Apple" and was once growing at a triple-digit pace in the smartphone market, has struggled in recent times. But it has looked to new areas of growth beyond smartphones, particularly other internet-connected devices like TVs and robot vacuum cleaners.
Xiaomi sees the Mi AI Speaker being at the center of this with users able to connect it to other devices made by the company and then control those through the speaker.
Like Amazon has done, Xiaomi is inviting third-party developers to create apps for the speaker.
Xiaomi, however, hasn't given any word on whether this will be available internationally after the beta trial. But the smart speaker space is getting incredibly crowded and even in China, e-commerce giant Alibaba has its own version called Tmall Genie.