Daimler and BAIC Motor will invest a total of approximately €4bn in their joint venture BBAC by 2015, including a pledge of €1bn for the localisation of additional Mercedes-Benz compact car models.

Under the move – which comes as the Volkswagen Group and its Chinese joint venture partner First Automotive Works (FAW) announce that they are extending their present partnership for a further 25 years – the existing production capacities at BBAC for the C-Class, the long-wheelbase E-Class and the GLK-Class will be more than doubled to over 200,000 units per annum in 2015.

Meanwhile the GLA-Class compact SUV will go into production as Mercedes-Benz’s first locally produced compact car model early next year.

The firms said the agreement will help Daimler strategically strengthen its local footprint, and shows the company’s strong commitment to China and its strategic partner, BAIC.

Dr Dieter Zetsche, chairman of the Board of Management of Daimler AG and head of Mercedes-Benz Cars, said: ‘Today’s signing shows again that we are both committed to our long-term partnership with BAIC and confident in our future in the key market of China. This strategic investment in the localization of compact cars will give us better access to the huge growth potential that this segment offers in the mid-term, and so pave the way for Mercedes-Benz’s sustainable growth. With the all-new GLA-Class, we will lay the foundation starting early next year.’

The two companies first partnered in 2003, with Daimler further strengthening the partnership one decade on, taking a 12% stake in BAIC Motor in November 2013.

The BBAC joint venture has produced Mercedes-Benz cars since 2006 and engines since 2013.