BEIJING, Nov. 20 -- With sales soaring for cars of every size and shape, China will pass Japan as the second-largest vehicle market this year, after the United States. But the Chinese market may still not be big enough to support all the homegrown manufacturers as well as the foreign automakers trying to do business here.

China has more car brands now than the United States, as companies like Fiat and PSA Peugeot Citroen compete with General Motors, Ford, DaimlerChrysler, Toyota and Nissan in joint ventures with Chinese companies.

But while car sales in China have climbed this year, automakers have increased their output even faster, causing fierce competition and a slow erosion in prices — even for top-selling models like the Buick Excelle and Hyundai Elantra.

As executives of the world's multinational automakers gathered in Beijing for the international auto show which opened Saturday, they are particularly watching the growing competitiveness of Chinese manufacturers, who have been steadily gaining market share over the last several years and are expected to continue doing so.

Biggest winners

Some of the biggest winners in the Chinese market have been little-known domestic automakers that have grown up in even lesser-known cities, like Geely in Taizhou, Chery in Wuhu and Hafei in Harbin.

These low-cost producers do not yet have the marketing muscle, brand names and global distribution to compete on their own in the industrialized world, though they are starting to form international alliances to do so.

Geely, for example, has just set up a joint venture with a British company to make the famous London "black cabs" in Shanghai for markets around the world, while Chery is working out the details of a deal with DaimlerChrysler to make subcompacts in Wuhu for the American market.

Home brands play big

But in the home market, Chinese automakers are proving increasingly formidable competitors. After practically disappearing before an onslaught of foreign-dominated joint ventures in the 1990s, Chinese brands have recovered and now hold a quarter of the domestic market.

To gain market share, Chinese automakers have become masters at controlling costs and holding down prices. Some of the savings, particularly in the 1990s, have come by imitating Western designs. But most of the savings have come from inexpensive labor at every stage in the production process.

Cost controls have become increasingly important as the original heart of the Chinese marke-selling luxury sedans to companies and wealthy families — has been far surpassed by the sale of affordable compacts and subcompacts, with no sign this trend will stop.

"The demand will tend to shift toward fuel-efficient and middle-class vehicles," said Xu Ping, chairman of Dongfeng Motor, one of the largest automakers in the country.

The Chinese market is on course to reach almost 6.8 million cars and light trucks this year, more than the Japanese market, although a larger share of the Chinese market consists of small commercial trucks.

By comparison, the United States is on track for sales of almost 16.7 million cars and light trucks this year. For the 18 countries of Western and Central Europe, total sales are coincidentally also expected to be 16.7 million this year, with 3.6 million to be sold in Germany and 2.5 million in France.

Automotive Resources Asia, acquired this autumn by J.D. Power & Associates, forecasts that sales of cars, minivans and sports utility vehicles in China will roar past such sales in Japan next year; US$74 billion worth of these vehicles are being sold in China this year, up from US$55 billion last year.

Low prices

Offering inexpensive deals is crucial in China's burgeoning market because brand loyalty is rare. J.D. Power recently found that 80 percent of Chinese car buyers are purchasing their first vehicle, compared with fewer than 15 percent in the United States, Europe and Japan.

Before China entered the World Trade Organization in November 2001, China had some of the world's highest car prices. Domestic automakers and joint ventures hid behind steep tariffs that nearly doubled the price of imported cars.

Falling tariffs and a plethora of new models and new car factories in China have brought prices down to international levels for well-known, globally traded models like the Honda Accord.

Domestic Chinese brands sell even cheaper models-subcompacts at US$6,000, midsize cars for 15,000 U.S. dollars ¡ªwhich are still too costly for the large majority of the 1.3 billion Chinese but are affordable for the rapidly growing middle class.

Some of the best examples of Chinese cost efficiencies can be found at Geely, the only large, purely Chinese automaker that is not partly owned by a government agency and has not gotten its start with the benefit of loans from State-owned banks.

Geely, with 5 percent of the market, is the country's second-largest home-grown automaker, trailing Chery, a State-owned company with 7 percent.

Volkswagen brands hold the largest share of the market, at 16 percent, followed by General Motors, with 11 percent, also through a joint venture.

Many Chinese automakers are soaking up a lot of technical know-how through joint ventures, and some are buying technology outright, like Nanjing Automobile.

But many Chinese executives complain that Western companies do not transfer their very latest designs, and the Chinese are starting to step up their own research and development spending.

(Source: Shenzhen Daily/Agencies)