The state parent of Brilliance China Automotive Holdings is in talks with Daimler AG to set up a joint venture in China making special purpose vehicles, executives at the parent company, Brilliance Auto, said on Monday.

Brilliance is discussing a manufacturing tie-up with Daimler now to convert Mercedes-Benz commercial vehicles into special purpose models, said a Brilliance Auto executive who was briefed on the matter.

The shareholding structure and size of the venture have not been finalized, but a deal could be reached before the end of the year, the executive told Reuters.

The options are open now. We may build a new plant or use Brilliance's existing capacity, another Brilliance Auto executive said, adding the converted Mercedes-Benz models will be sold in China.

Both executives asked not to be named because of the sensitivity of the issue.

A Daimler spokesman in China could not be reached immediately for comment.

Daimler makes Mercedes-Benz sedans in China with Beijing Automotive Industry Holding Corp (BAIC). It agreed late last year to set up a medium-to-heavy truck venture with BAIC subsidiary Beiqi Foton Motor Co.

The German automaker also owns 34 percent of a three-way commercial vehicle tie-up in south China with Fujian Motor and Taiwan's China Motor.

Brilliance Auto, the country's eighth-largest automaker and a BMW partner, manufactures BMW 3 series and 5 series sedans at a plant in the northeastern Chinese city of Shenyang.

Yufei Wan, the chief of Brilliance's international trade arm, said in April that the two partners were building their second manufacturing plant in China, where automobile remain solid as government aggressive stimulus measures lift consumer confidence.

The expansion could increase the annual capacity of the JV by 75,000 to 80,000 units by the second half of next year, up from 30,000 at the end of 2008, Wan added.

BMW, however, said no decision had been made on a second plant.

Brilliance Auto had shipped its BS6 and BS4 mid-sized sedans, developed in-house, to Europe since 2007. Both models scored poorly in initial crash tests although improvements were subsequently made to the BS6 model.

(Reporting by Fang Yan and Jacqueline Wong)

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