For more than five years China's auto industry has grown at a rate higher than that of the country's industrial growth as a whole. A rising middle class and a relatively tiny but conspicuous consuming upper class are fueling record car sales. That has foreign automakers hoping to make greater inroads with millions of first-time car buyers. China is a key topic of discussion at the Tokyo Motor Show.
Falling sticker prices for passenger cars and rising incomes in China have executives of non-Chinese automakers optimistic about their short and long-term volume prospects in the world's most populous nation.
At the Tokyo Motor Show, one of the world's biggest, which kicks off this week, auto industry executives from all over the world say they are keeping a close eye on China.
One of them is BMW Chairman Helmut Panke.
"When you look at it for this year the projection is for the first time the Chinese car market, not light vehicle, will break the three million barrier," he said. "But just wait - pretty soon the Chinese market is going to be in the top three."
But the foreign entrants face stiff competition -China has more than one hundred domestic automakers.
Many global automakers have set up factories in China. Some of the top production plants churn out such brands as Volkswagen, Honda, Suzuki, Jeep, Hyundai, and Peugot.
Jeep, owned by the German-American automaker DaimlerChrysler, set up in China in 1983 - making it pioneer in joint venture production.
Thomas Hausch is DaimlerChrysler's top executive for international sales. He says the early start allowed Jeep to dominate the sport utility vehicle, or SUV, market and to be ready when it was time to diversify production.
"With the opening of the market, SUV's from a percentage from a total market [perspective] went a little bit into the background," he explained. "We're always number one or number two with our production joint venture where we not only produce Jeeps today but we will also in the future, for example, produce the Chrysler 300C and our colleagues from Mercedes use that plant."
Honda Motor China spokesman Masaya Nagai says the competition is getting tougher for foreign automakers because Chinese drivers are now more price conscious, sophisticated and selective.
"They're also different from a couple of years ago when the customer were mostly looking for the traditional sedan type," he said. " But, right now, [Chinese are]same as the U.S. customers, Japanese customers - they started looking for the other types of vehicles, SUV's or mini-vans."
Toyota, the world's second largest automaker behind General Motors of the United States, has about a two percent share of the Chinese market. In comparison, it has five percent slice of the European market and a 10 percent share in the United States.
Toyota spokesman Hideki Fujii says that means the dominant Japanese automaker must make Chinese buyers more aware of its brand, something it does not need to do in more mature markets.
Mr. Fujii says Toyota's strategy is to produce cars in China, which will give it the ability to quickly respond to changing local tastes and introduce new models.
But Mr. Panke at BMW says for luxury brands the most vital element is to make sure the Chinese driver gets exactly the same quality car and choice of options that are sold in more established markets such as Europe.
"Currently out of the total mainland China car market the premium segment is something less than two percent, so it's small," he explained. " But those customers want exactly the BMW, the Porsche, the Mercedes, the Lexus, in there. So the premium market in China is going to continue because customers want to have the original."
As foreign competitors move in, China's domestic manufacturers, confronting a falling market share and tighter profit margins, are looking overseas.
China sold less than 50,000 cars outside the country last year. Most of those went to Iran or a few other Middle East nations. Chinese automaker Chery says it will begin exports to the United States and Europe in 2007.
The domestic makers, which need to improve quality to have a shot at success in developed nations, are getting a boost from China's State Development and Reform Commission. It has initiated projects to advance the automotive electronics sector and will pay to build software platforms for auto design.
But it will still be a long march abroad for China's automakers. At the current Tokyo Motor Show, of more than 600 models from over 12 countries, not a single Chinese car is on display.
