The stake, worth almost US$9 billion at the current valuation for Daimler shares, makes Li the biggest single shareholder in the maker of Mercedes Benz cars, trucks and vans headquartered in the German city of Stuttgart.
The size of the investment leapfrogs a 6.8% stake in the Stuttgart-based group held by Kuwait and Renault-Nissan's 3.1% holding.
Daimler and Geely could not be immediately reached by Xinhua for comments.
Daimler firmed up plans toward the end of 2017 to break up its rigid conglomerate structure, instead creating a holding company with three separate units: Mercedes-Benz Cars & Vans, Daimler Trucks & Buses and the financial-services division. "It will be an honour to support this unique team under the leadership of Dieter Zetsche in the future", Li Shufu, chairman and owner of Zhejiang Geely Holding Group and Geely Group said in a statement. "Daimler already has a strong footing in China".
His interest in Germany is the latest in a string of acquisitions by wealthy Chinese firms and individuals, including conglomerate HNA Group Co (海航集團), which owns an 8.8 percent stake in the nation's biggest lender Deutsche Bank AG.
The Chinese group bought Volvo Cars from Ford in 2010, and has since transformed the fortunes of the Swedish carmaker.
It is not clear what it is that Geely wants and how it would work, but the move is considered part of one that is much broader in China to gain involvement in the automotive industry of Europe, said one European based analyst.
In November, Geely asked Daimler to issue new shares so it could buy a stake, but the German company turned down the offer saying it did not want to dilute existing shareholders, sources at the time told Reuters.
Daimler sold almost 3.3 million units, and had 164 billion euros in revenue past year.