The SCO refused to initiate Iran's accession last year despite a request from Russia which backs Tehran's bid, Reuters reported.
The bloc also includes four ex-Soviet Central Asian republics.
Assistant Chinese Foreign Minister Li Huilai said Iran is an observer at the SCO and has for a long time "proactively participated" in its activities and has made positive contributions to the SCO's development.
"China highly appraises this. China welcomes and supports Iran's wish to become a formal member of the SCO," he told reporters, ahead of the summit in Kazakh capital Astana which President Xi Jinping will attend.
"I think that at this meeting all sides will continue to conscientiously study the issue of Iran becoming a member on the basis of the SCO's relevant rules and consensus through consultations."
China has close economic and diplomatic ties with Tehran, and was also instrumental in pushing through a landmark 2015 deal to curb Iran's nuclear program.
Li said that Pakistan and India will formally join the bloc as members at the summit, saying that the grouping's attraction to others and its influence continues to grow.
"More and more countries have said they hope to become dialogue partners, observers or formal members of the SCO. China welcomes countries who want to and who meet the conditions to apply to become members, observers or dialogue partners."
China said in November it was willing to consider any application from NATO-member Turkey to join the SCO, after Turkish President Recep Tayyip Erdogan said his country could join.
China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan formed the SCO in 2001 to fight threats posed by radicals and drug trafficking from neighboring Afghanistan.