BEIJING—German luxury automaker Daimler AG is buying a stake in the passenger car unit of its main Chinese partner to expand its presence in the world’s biggest auto market.

Daimler said it will pay $875 million for 12% of BAIC Motor, a unit of Beijing Automotive Industries Corp., with which it manufactures Mercedes Benz cars. Daimler said the investment was in preparation for a possible initial public stock offering by BAIC Motor.

China’s auto sales rose 7.1% in 2012 to 15.5 million vehicles as an economic recovery gained traction.

Daimler said the deal makes it the first global auto brand to own a direct stake in a Chinese automaker. All major automakers have joint ventures with Chinese partners but until now have avoided such cross-ownership.

The agreement will give Daimler two seats on the board of BAIC Motor. The companies also agreed to increase BAIC’s ownership stake in their production joint venture by 1% to 51%, allowing it to consolidate the unit’s financial results in its own ahead of the IPO. In exchange, Daimler will increase its stake in their sales joint venture by 1% to 51%.

Daimler’s sales in China last year of its Mercedes-Benz, Smart, AMG and Maybach brands rose 4% over 2011 to 206,150 vehicles.

©The Canadian Press