Germany's Daimler and China's BYD Co set up a 50-50 joint venture on Thursday to develop an all-electric car for the Chinese market, saying they believe China has the potential to be among the world's largest markets for zero-emission vehicles.

Daimler, owner of luxury-car brand Mercedes-Benz, and BYD, one of China's leading battery and auto makers, are expected to invest a total of 600 million yuan ($87.9m) in the joint venture, Shenzhen BYD Daimler New Technology Co. The money is to be used as registered capital for the joint venture in the southern industrial city of Shenzhen.