* BAIC becomes significant Daimler shareholder
* BAIC sought to deepen relationship after rival Geely took stake
* Daimler said it welcomes BAIC investment (Adds detail, background)
FRANKFURT, July 23 (Reuters) - China's Beijing Automotive Group Co Ltd (BAIC) has bought a 5% stake in Daimler , cementing its relationship with the German carmaker after China's Zhejiang Geely Holding emerged as a potential rival.
BAIC was Daimler's main partner in China, operating Mercedes-Benz factories in Beijing through Beijing Benz Automotive, until 2018 when Geely chairman Li Shufu took a 9.69% Daimler stake with the aim of forging an alliance to develop electric and self-driving cars.
"This step reinforces our alignment with, and strong support for, Daimler's management and strategy," BAIC chairman Heyi Xu said on Tuesday.
Reuters reported in May that BAIC was seeking to buy a stake of up to 5 percent in Daimler as a way to secure its investment in Beijing Benz Automotive.
Daimler, which since 2013 has held a stake in a Hong Kong-listed BAIC subsidiary, said it welcomed BAIC's investment.
The high cost of electric car batteries has made it hard for automakers to build affordable zero-emissions vehicles, leading several of them to strike alliances with Chinese partners.
Stuttgart-based Daimler in March agreed to build the next generation of Smart-branded city cars together with Geely, which is based in Hangzhou.
Daimler has reassured BAIC that any new industrial alliances involving Mercedes and a Chinese partner would only happen after a consensus is found with BAIC.
Geely declined to comment.
Reporting by Tom Sims and Edward Taylor in FRANKFURT Additional reporting by Yilei Sun in Beijing Editing by Michelle Martin and Kirsten Donovan