China Carmakers Go Upscale in Shanghai

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But if you stay with this strategy, sooner or later you will die," says Lawrence Ang, executive director of Zhejiang Geely Holding. "In order to keep up margins, a company needs to innovate. We do use reverse engineering, but we also are building up core technology," he says, citing his company's academic and research institutes as keys to this goal.

Shenyang (Liaoning)-based Brilliance Auto, which has a joint venture with BMW, is also expanding its lineup of self-branded vehicles. At the Shanghai Auto Show it presented eight self-branded vehicles, including its A1 compact hatchback. And it plans to export a $26,000 midrange vehicle, the BS6, to Northern Europe later this spring. "We will improve our technology, our brand, our marketing," says Liu Zhigang, president of Brilliance Auto. "Through all of this we will continue to improve the quality of our vehicles and move toward producing better, higher-end cars."

Long Road to Travel

To be sure, foreign brands are hardly ready to hand over the ignition keys to the China market. The Shanghai Auto Show, which has drawn 1,300 companies from around the world, highlighted that fact. GM is showing 41 vehicles from its various China joint ventures at the show, including Buick, Cadillac, Saab, and Opel models. Under its Chevrolet lineup, GM already sells its Epica sedan, Lova compact, Aveo hatchback, and Spark mini in the China market. Chevy sales surged 26% last year, a rate of growth it expects to repeat this year. "We position ourselves as a global, international brand with high quality," says Steve Betz, Chevrolet brand director in China.

"The Chinese manufacturers currently have 26% of the market—so yes, they are out there. But I personally feel their quality isn't as good as ours," says Betz. "We are seeing much more competition from Hyundai, from the Toyotas, the Hondas, of the world. Those are the types of companies that are really the competition [for Chevrolet in China]."

And despite some progress, it's clear that Chinese vehicles have a long road to travel before they raise their quality high enough to meet mature auto market standards in everything from design to emissions to safety levels. Nevertheless, as the Shanghai Auto Show demonstrates, they are leveraging their partnerships with foreign companies to improve fast. That's certainly true of SAIC, which has been producing cars with GM since 1997 and Volkswagen since 1985.

"Every country has its own style of economic development, and China has been in the industrialization stage," says Tang Dongcheng, vice-president of Dongfeng Motor, a joint venture between Hubei-province-based Dongfeng Group and Nissan. "In the Chinese auto industry we have been in infancy but now are moving toward a more mature stage. In the future, China will move forward to the high end," says Tang. The Chinese infant is growing up. Watch out, automakers of the world.

Click here for a look at some of the luxury cars making a splash in China.

Roberts is BusinessWeek's Asia News Editor and China bureau chief.