Beijing Automotive Industry Corp is in talks with Daimler-Benz, its 50-50 joint-venture partner for the assembly of mainland-distributed Mercedes-Benz vehicles, to develop cars under its own label.

"The co-operation between global and local carmakers is encouraged by the government and other carmakers should follow," said Li Gang, an official from the National Development and Reform Commission who oversees the vehicles and vessels division.

Mr Li was speaking on the sidelines of a vehicle conference.

Beijing Automotive, the fifth-largest domestic carmaker by sales, was planning a share sale to raise capital, said company chairman Xu Heyi.

To survive in the congested domestic market, Beijing Automotive plans a three-pronged strategy involving the development of own-brand passenger cars, commercial vehicles and a joint venture with South Korea's Hyundai and Daimler-Benz.

"Beijing Automotive plans to build production plants in Hunan, Gansu, Sichuan and Xinjiang this year," Mr Xu said. "Also, it is seeking partners to develop business in Russia."

Global carmakers are keen to hook up with mainland firms to grab a share in the world's largest consumer market. On the other hand, the central government encourages 50-50 joint ventures to foster technology transfer. "Until local carmakers can grab a stable market share using their own technology and widely accepted models, the government is unlikely to relax the 50-50 [joint venture] policy," said Fitch Ratings analyst Matthew Kong.

Guangzhou Honda, a 50-50 joint venture between Hong Kong-listed Denway Motor and Honda Motor, was the first carmaker to unveil a plan to build own-brand models last July, investing 2 billion yuan (HK$2.23 billion) into the scheme.

Subsequently, Denway's parent Guangzhou Automotive Industry Corp said it was in talks with Toyota and Honda to produce hybrids, with the green cars expected to be marketed in one year.