The China Daily reports that Mercedes-Benz cars will be made in China before the 2008 Olympic Games under an agreement between Beijing Automotive Industry Corp (BAIC) and its joint venture partner DaimlerChrysler.

Currently, BAIC has a joint venture with DC, Beijing Jeep Corporation (BJC), which produces the Cherokee at a plant in Beijing.

The report says that the Chinese government prefers to use new vehicles manufactured locally on official duties during the Games and DC is looking to produce Mercedes cars in China as part of a competitive response to BMW‘s plans.

BMW recently obtained government approval to produce cars next year in a joint venture with China Brilliance Auto.

BAIC is reportedly in talks with DC about the Mercedes-Benz production plans.

BAIC has also recently announced plans to set up a joint venture with Hyundai – 10% owned by DaimlerChrysler – to produce passenger cars at the rate of 200,000 units a year by 2005.

An entirely new facility may be constructed in Beijing for the Mercedes-Benz project, according to the SinoCast report.