The former assistant coach of New Orleans Hornets and Cleveland Cavaliers in the NBA led the Shanghai Sharks to final four of the domestic league in his first season after being hired by club owner and NBA All-Star Yao Ming.
"There will be setbacks and difficulties but I believe I can overcome them," he told a news conference. "I am excited."
Donewald's predecessor Guo Shiqiang, pilloried after a humiliating defeat at the Asian championships last August, will be retained as an assistant coach.
Donewald, who will be without Yao for both campaigns, will get a three-year contract if China do well at those events and will also still oversee the Sharks.
He is the third foreign coach of the China team, following compatriot Del Harris and Lithuanian Jonas Kazlauskas.
(Reporting by Liu Zhen and Nick Mulvenney; Editing by Alastair Himmer)