FRANKFURT (Reuters) - Germany's Daimler DAIGn.DE is setting up a ride-hailing joint venture in China with Geely Group [GEELY.UL], in a sign the Chinese firm is making progress in its drive for closer relations with the maker of Mercedes-Benz cars.

FILE PHOTO: A Mercedes-Benz S-Class vehicle is seen during the launch of the Mercedes-Benz research and development centre in Tel Aviv, Israel November 16, 2017. REUTERS/Amir Cohen/File Photo

The deal creates a new competitor to Didi Chuxing, which currently dominates a Chinese ride-hailing market that has shown explosive growth in recent years, expanding from 30 million users in 2014 to 217 million in 2017, according to Bain & Co.

The market is currently worth $23 billion, more than all other ride-hailing markets combined, and Didi accounts for 90 percent of all bookings, the consulting firm said.

Geely Chairman Li Shufu took a 9.69 percent stake in Daimler earlier this year, asking Mercedes-Benz to strike up an alliance to better counter the threat from upstart mobility companies.

Li's move rekindled German fears about high-tech know-how falling into Chinese hands and Daimler initially balked at the prospect of an alliance, in part on fears it might alienate Mercedes' existing Chinese partner BAIC 1958.HK.

“The JV (joint venture) will provide ride-hailing mobility services in several Chinese cities using premium vehicles including but not limited to Mercedes-Benz vehicles,” Daimler said in a statement on Wednesday.

The 50:50 venture will be headquartered in Hangzhou, China, and use Mercedes S-Class, E-Class and V-Class vehicles among others. Financial terms and investment plans were not disclosed.

As part of the deal, Geely Group Company and Daimler Mobility Services will be equally represented on the board of the new ride-hailing service, for which the two companies will jointly develop the software infrastructure required to support the business in China.

“The development of such services, in which both companies already have a presence, forms part of our transformation from a vehicle manufacturer into a global automotive technology group,” Geely Holding President An Conghui said.

GROWTH POTENTIAL

Ride-hailing accounts for more than 30 percent of the global taxi market and Goldman Sachs believes it could grow eightfold to $285 billion by 2030, with significant potential in China, the world’s largest car market.

Part of the growth in mobility services in China is down to the popularity of mobile payment systems, which have made transactions seamless, Bain said.

Didi, founded in 2012, cemented its dominance in China when it bought Uber’s operations in the country in 2016. It is preparing to launch car-sharing and other on-demand transport services.

The prospect of autonomous cars hitting the road has intensified competition between technology companies, ride-hailing firms and traditional carmakers to roll out fleets of smartphone-hailed taxis, or strike cooperation deals.

In China, Daimler already has a car-sharing business, Car2Go, while German rival BMW BMWG.DE has ReachNow. SAIC 600104.SS has EVCard and Ford F.N has a shuttle-sharing service, Chariot.

Bain said that for Chinese customers the time spent in traffic has reduced the attractiveness of owning a car.

“Customers tend to care most about the cost, waiting time and driver ratings, and much less about the brand of the car in which they travel. This is a shift with huge potential implications for manufacturers that for decades have worked hard to build and maintain differentiated brands,” Bain said.

At 1200 GMT, Daimler shares were up 1.4 percent at 51.14 euros. Geely also owns Swedish carmaker Volvo.