While foreign car makers with their joint ventures hold a strong lead over their Chinese competitors, especially in the higher-end segment, mainland manufacturers are showing signs they want to be serious contenders. There are about 100 domestic producers, most of whom were unheard of just a few years ago. But while quality is still a problem, sales of domestic cars were also booming. In the first four months of the year, sales of locally produced cars rose almost 50 per cent from a year earlier to 373,000 vehicles, accounting for 27.9 per cent of the market. Take, for example, Geely Automobile Holdings, a Zhejiang-based company that got its start 20 years ago producing refrigerator parts. Geely produced its first car in 1998 and now has about 5 per cent of the market as the second-ranked seller of small cars. It has four factories and plans to set up two more facilities this year, which will see capacity double to almost 200,000. The company has set a goal of producing 750,000 cars a year by 2010, when it hopes to export about 50 per cent of output. In the first quarter, Chery Automobile, one of the fastest-growing manufacturers, sold more than 100,000 cars, compared with 185,000 units last year. The company has raised its sales target for the year to 300,000. Analysts say local producers will not be content to just hold the low-end market. 'Local companies are starting to make an effort to improve quality, and I believe they are making a lot of improvements,' says Sandra Zhao, senior market analyst with CSM Asia. While she said they would not pose a serious threat to foreign manufacturers in the near future, foreign companies already were facing competition at the low end. 'The Chinese are learning as they go,' says Tim Dunne, of Automotive Resources Asia. 'Their base is expanding as they gain revenue and learn, it is natural that they will eventually move up in quality and in segments. 'How quickly this will happen, I don't know, but it's a natural progression, and it is what the Japanese and Koreans did.' Analysts also argue that foreign manufacturers, who can now only enter the market through joint venture deals limited to 50 per cent control, should prepare for challenges from their partners. Graeme Maxton, automotive economist with the Economist Group and managing director of Autopolis in Asia, told GlobalAutoTV that there were three major challenges facing foreign firms in China. One, he said, was that Chinese manufacturers were developing their own capabilities quite fast, often with government help, adding that 'there is a clear agenda'. He said foreign firms were certain to lose some of their intellectual property to local partners. The final factor, he said, was that the Chinese could build cars at cost levels far below most international manufacturers - 40 per cent cheaper than the Koreans and Japanese according to one estimate. Chery's QQ model sells for just US$3,700. GM partner SAIC, which has also linked up with Volkswagen in China, has established a US$460 million plant to make its home-produced cars based on the MG Rover technology purchased from the failed British car-maker. And Geely has announced a plan to turn out a luxury car within the next two years.