So "in 1986, we established Mercedes-Benz China in Hong Kong, largely because the economy there was already quite developed," says Walker.

In the late 1980s, Mercedes-Benz's flagship model 250S and 280 SEL replaced the Hongqi (Red Flag) sedan as the official car for a few high-level Chinese leaders, but it was still unknown to the general public.

But as the Chinese mainland becomes increasingly open to the outside world, more consumers began to realize that the three-pointed star logo stands for wealth and prestige and they began to be crazy for the brand.

By 2000, total automobile production in China had increased rapidly from 220,000 units in 1980 to 1.83 million units, making China the ninth biggest country on auto production.

"We see great potential in the Chinese mainland with the growth of the luxury car market, a quickly growing economy, and a dramatic rise in demand for luxury vehicles," says Klaus Maier, president and CEO of Mercedes-Benz (China) Ltd.

"With this thought in mind, we brought the S-Class to China first, following a strategy of logistics and service first, paving the way for more products to follow. Mercedes-Benz's business then healthily develops in the Chinese market," says Maier.

In 1993 and 1994, China's luxury sedan market enjoyed a short-lived boom when the government allowed foreign enterprises or joint ventures to buy duty-free imported vehicles in order to encourage more foreign investments.

By saving more than 100 percent of the tariffs, Mercedes-Benz became a hot ticket in 1994 with estimated sales of over 10,000 units that year.

However, in 1995, Mercedes-Benz's global rival, Volkswagen made the decision to produce its luxury sedan Audi in a joint venture with China FAW Group Corp in Changchun, Jilin province. And in 1996, the first Audi 200 V6 rolled off the production line.

With Audi's star model A6's coming into the market in 1999, the local-produced sedan with competitive price soon wins the luxury market with sales of 6,911 units the year.

Mercede-Benz's other major German competitor, BMW, also formed a joint venture with Chinese Brilliance Auto in 2003 to begin producing BMW limousines in Shenyang, Liaoning province.

In 1984, Mercedes-Benz talked to FAW in hopes the Chinese company could use Mercedes-Benz's technology to retool its homegrown luxury Hongqi sedan. However, that plan was aborted in 1986 for unknown reasons.