Dieter Zetsche, chairman of the management board of Daimler AG

Daimler AG has vowed to beef up its research and development capability in China in a bid to align its premium passenger car brand Mercedes-Benz to the changing tastes of wealthy Chinese and catch up with major rivals Audi AG and BMW AG in the Chinese market.

Dieter Zetsche, chairman of the German group and head of Mercedes-Benz Cars, said at the company's annual news conference in Stuttgart on Thursday that it is intensifying its development activities in China, where the brand lags far behind Audi and BMW in terms of sales.

"China will play a key role in our product development process in the future," Zetsche said.

He said Daimler will have around 500 "highly qualified" engineers and designers in China by the end of this year.

Last November, the group opened a research and development center, including a design studio, in Beijing with a total investment of 865 million yuan ($140 million).

"We are massively expanding our local production in China. Our plan for the next few years calls for two-thirds of the vehicles we sell in China to be manufactured there as well," he stressed.

At the news conference, Zetsche introduced a show car - Mercedes-Benz's new G-Code sports utility coupe concept, which was designed at the studio in Beijing.

Last year, Mercedes-Benz sales in China surged by 29 percent to 281,588 units, with 55 percent built locally.

While, the China sales of Audi were 575,077 and BMW sold 425,765 units.

Zetsche said Mercedes-Benz will continue to enjoy double-digit growth in China this year and sales will be "well over" 300,000 vehicles.