The relationship between Mercedes’ parent Daimler and China’s Beijing Automotive Group (BAIC) isn’t a new one. Beijing Benz Automotive Company (BBAC) has been building Mercedes-Benz passenger cars since 2006, while another Beijing subsidiary began producing Auman-branded Mercedes trucks in 2012.

Under the Beijing Mercedes-Benz Sales Service Company Limited umbrella, Mercedes sells both imported and locally-produced cars under one roof, a clear indication that the German automaker has faith in its Chinese partner.

Today, Daimler has announced that it will take a 12-percent stake in BAIC, ahead of an anticipated IPO from the Chinese automaker. The move makes Daimler the first foreign automaker to purchase a stake in a Chinese manufacturer, a clear sign that the company anticipates significant growth in the Chinese market.

In exchange for its investment, Daimler will receive two seats on the Board of Directors of BAIC Motor. BAIC will also take a majority stake in BBAC, allowing it to be rolled up into the joint venture ahead of Beijing’s IPO. Similarly, Daimler will take a majority share of the Beijing Mercedes-Benz Sales Service company.

Of the agreement, Daimler’s chairman of the Board of Management, Dr. Dieter Zetsche, said, “Following our technical cooperation with BAIC Motor and the setup of our integrated sales company, we are now taking the next step... Our investment is a strong sign of the increased level of trust and cooperation between our two companies...”

BAIC isn’t Daimler’s only automotive partner in the Chinese market, as the German brand also has a 50:50 joint venture with BYD to build electric cars under the Denza brand. The initial Denza automobile is expected to hit the Chinese market in 2014.

While the deal between Daimler and BAIC has been inked, it’s still subject to the approval of Chinese authorities. Assuming the Chinese government approves of a foreign company investing in a domestic automaker, the deal should be finalized by early next year.