Chinese Luxury Cars Debut at Beijing Show

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China's State Development and Reform Commission, which maps out strategy for key domestic industries, is considering a policy that would require both Chinese and foreign auto manufacturers to do more research and development and design work on the mainland. "The local OEMs [original equipment manufacturers] are jumping on the bandwagon after the central government’s battle cry for zizhu, the Chinese world for self-generated domestic brands," says Lubo Li, senior director for business and market development for J.D. Power’s Asia-Pacific China operation. J.D. Power, like BusinessWeek.com, is a unit of the McGraw Hill Companies (MHP).

Indeed, Chinese automakers are eager to show off their engineering and product designs. China’s fifth-largest automaker, Anhui-based Chery Automobile, will exhibit its hybrid car model A5ISG, the first of its kind to be developed by a Chinese automaker, in Beijing. Small but ambitious Geely Automobile is also promising to roll out its own hybrid vehicle based on in-house technology in 2007. Both have international sales aspirations, too. "Our plan is to become a major exporter," Geely Executive Director Lawrence Ang said in a recent interview with BusinessWeek.com. The company expects to sell compacts and sedans in the U.S. as early as 2008.

Critical launch

One of the most closely watched companies at the Beijing show will undoubtedly be China’s third-biggest carmaker, Shanghai Automotive Industry Corp, or SAIC, which as a joint venture partner with General Motors and Volkswagen (VLKAY), reported revenues of $14 billion in 2005. SAIC turned heads in April when it unveiled plans to spend more than $1.7 billion over the next five years on product development; it also plans to launch its first branded car, a high-end sedan called the Roewe, next year. (The other two of China’s "Big Three" automakers are First Automobile Works and Dongfeng Motor Corporation.)

SAIC developed the car based on the technology rights to two Rover models (the 25 and 75) it acquired from Britain's MG Rover Group last year. Other Chinese models that will get a close look at the Beijing confab are the BYD F8 hardtop convertible, First Auto Works’ Hongqi (Red Flag) HQ3 Sedan, and Geely’s next-gen sports car called the Mybo.

Taken together, the domestic launches are critical for the China’s fledgling domestic industry. "It’s a higher reward and higher risk game" than playing OEM backup and Chinese partner to foreign automakers, notes J.D Power’s Li. "If they fail to click with the customers or meet their expectations, that will cause significant damage that will take longer to recover from." For domestic and foreign automakers with aspirations of grabbing high-end Chinese consumers, it’s definitely show time in Beijing.

To see the highlights of the 2006 Beijing auto show, Click here for the slide show

Brian Bremner is BusinessWeek's Asia Regional Editor based in Hong Kong.