Visitors look at a new Baojun 630 sedan at the Shanghai International Auto Show Thursday, April 21, 2011 in Shanghai, China. General Motors unveiled the first model of its new car brand Baojun aimed specifically market at China.
In recent years, the sky has been the limit when it comes to car sales in China, with growth at levels not seen anywhere else in the world.
But now reality is kicking in and that growth is slowing, forcing foreign auto makers to adapt with the times. Estimates are for 10 to 12 per cent growth in sales this year, slowed by inflation, rising fuel prices, an end to government subsidies on new car purchases and regulations designed to limit the number of new cars on the road in congested Beijing - still a healthy number by world standards, but a long way down from the 32 per cent enjoyed by the industry in 2010, and 45 per cent in 2009.
Enter the so-called indigenous brands: cheaper cars targeted at the new middle class in China's second- and third-tier cities, which are designed in China to compete with local carmakers.
Last month's Shanghai Auto Show was a showcase for these new brands. GM introduced the Baojun, or "treasure horse", which will be released later this year targeting new-car buyers in China's smaller cities; Nissan and Honda are following suit.
Analysts warn this tactic may eventually backfire into tougher competition for foreign brands, as the Chinese government is hoping the development of these new brands with Chinese partners will, over time, strengthen the domestic manufacturing industry.
"The writing is pretty clearly on the wall…China wants to be masters of its own market and this is how they're going to get it done," said Michael Dunne, president of Dunne and Co., an auto-industry consultancy based in Hong Kong, who is also writing a book about GM's history in China. But he said such strong domestic competition is still a decade or more away.
"I think we're moving to the end of the beginning. We've had sensational growth, the kind of growth the world has never seen before," he said. "One reason to remain bullish is still that absolute volume of growth…There's plenty of room to run here."
And for the moment the Chinese market is continuing to play a huge role in most car manufacturers' global strategies. For instance, GM's sales in China were down in April, to 203,367 from 213,112 a year ago. Still, the automaker sold nearly 2.4 million vehicles here in 2010, and plans to double that to 5 million within five years.
"For two years [the market]was growing at a rate that was unsustainable and no one expected that to continue. But I think the overall view from the industry is it will continue to grow, just at a slower, more sustainable rate," said Karin Zhang, a spokeswoman for GM China based in Shanghai.