Mr Branstad was seen entering Trump Tower in New York on Tuesday for talks with the president-elect.
He called Chinese President Xi Jinping a "long-time friend" when Mr Xi visited Iowa before becoming Chinese leader.
After Bloomberg first reported the nomination, which requires Senate confirmation, Beijing responded by calling Mr Branstad an "old friend".
"We welcome him to play a greater role in advancing the development of China-US relations," said Foreign Ministry spokesman Lu Kang.
