The deal, which will enable Mercedes-Benz to bolster its position in China, will see the Stuttgart-based manufacturer pay €640m (£553m) to gain a minority 12% stake in advance of BAIC’s initial public offering later this year. It will also gain two seats on BAIC’s board.

The two firms already run joint ventures the Beijing Benz Automotive Company (BBAC), which has been producing Mercedes-Benz passenger cars since 2006, Beijing Foton Daimler Automotive Co (BFDA), which has been jointly manufacturing Auman-branded medium and heavy-duty trucks since mid-2012, and most recently, the establishment of the joint sales venture, Beijing Mercedes-Benz Sales Service Co.

Under the agreement, BAIC will increase its stake in BBAC by 1% to 51%, allowing it to take control of the operations ahead of its IPO. Meanwhile, Daimler will increase its stake in Beijing Mercedes-Benz Sales Service by 1% to 51%. The move means that all sales activities for imported and locally produced Mercedes-Benz cars will now be combined under one roof.

Xu Heyi, chairman of BAIC, commented: ‘Daimler’s investment in BAIC’s stake will go a long way in accelerating the development of BAIC’s self-owned brand in terms of capital, technology, management, and brand. At the same time, this will help Mercedes-Benz to boost its business performance in China.’

BAIC Group is one of China’s largest carmakers and sold over 1.5 million vehicles in 2011.

The full product range of Mercedes-Benz Cars is sold in the local market, with sales of around 210,000 vehicles last year. Daimler also runs a joint venture with Foton Motor, a Chinese truck manufacturer.

The transaction is subject to the usual approval by the relevant authorities and is expected to close by the end of this year or early next year