China’s Beijing Automotive Group Co. (BAIC) has bought a five percent stake in Daimler, setting up a new collaboration with the German automaker after China’s Zhejiang Geely Holding emerged as a potential contender.

BAIC was Daimler’s leading partner in China up until 2018, when Li Shufu, chairman of Geely, acquired a 9.69 percent stake in Daimler. Geely’s aim was to forge an alliance to develop EVs and AVs. About half of the stake BAIC holds is via rights to acquire shares. BAIC is backed by Beijing’s municipal government, and the holding has a market value of about $2.8 billion as of Monday close.

Developing and manufacturing of electric car batteries is a costly process, playing against automakers’ goals of building affordable EVs. This has led several manufacturers to ink alliances with Chinese partners. Earlier in March, Daimler agreed to build next-generation of Smart cars as EVs in China for global markets in partnership with Geely.

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China is a crucial market for Daimler as its pact with BAIC allows it to cut costs on battery development and production for EVs.

China is facing its biggest contraction in decades when it comes to the car market. Strategic ties with overseas firms like Daimler are crucial to keeping domestic carmakers away from the red.

Daimler has reassured BAIC that any new industrial alliances involving Mercedes and a Chinese partner would only go through after a consensus is found with its principal Chinese investor. Daimler operates Mercedes-Benz factories in Beijing through Beijing Benz Automotive.

The German automotive giant welcomed the BAIC investment, being a shareholder of its subsidiary BAIC Motor since 2013. Ola Kallenius, CEO of Daimler Group, said in a statement, “We are very pleased that our long-standing partner BAIC is now a long-term investor in Daimler.”

Geely declined to comment on the Daimler-BAIC alliance but referred to past statements which said it was committed to long-term investment and healthy collaboration with Daimler. The German group’s shares lost 30 percent of value after Li Shufu disclosed his stake, hit by a string of profit warnings linked to a slowing auto market and diesel-emission costs.

BAIC’s transaction also raises the question of whether Daimler and BAIC would reorganize their JV in China after restrictions for foreign investors in the world’s largest auto market eased up. Ingo Speich from Deka Investment GmbH stated at Daimler’s annual meeting in May, “Despite all joy about long-term anchor shareholders: we still want to see the Mercedes star and not the Chinese dragon on the hood.”

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Joint ventures with overseas brands are also instrumental for China to help its domestic auto industry to find a footing away from the nation.

Deka represents roughly nine million Daimler shares, and as such is against granting BAIC or Geely a seat on the company’s supervisory board due to a potential conflict of interest. On the other hand, BAIC views the purchase as a natural evolution of its relationship with Daimler.

“It has been our intention to strengthen our alliance with Daimler through an investment,” said Heyi Xu, chairman of BAIC. “This step reinforces our alignment with, and strong support for, Daimler’s management and strategy.”

China, the world’s biggest car market, it facing its first contraction in a generation, prompting local auto firms to expand their business overseas. Maintaining ties with Daimler is important for BAIC as its joint venture with Hyundai Motor has been struggling and its own domestic brands are going through a lot of cash as the trade dispute with the U.S. is stripping demand for new vehicles.