Chinese car firms are diversifying into hybrids, electric, hydrogen and gas powered vehicles, as well as improving fuel efficiency and reducing emissions, as they battle for shares of the emerging market for 'greener' models.
'All the research that foreign companies are doing on 'eco' cars, we are also doing,' Du Fangci, deputy head of the China Association of Automobile Manufacturers, told DPA.
'For example, hybrid, fuel-cell, multiple fuel, alternative fuels; we are doing all of this and we have been doing the research for more than five years,' Du said.
Most joint venture and Chinese firms are researching hybrids and other new technologies.
Toyota has started to produce and sell small numbers of its Prius hybrid in China, but the price of $30,000 puts off most buyers.
Chang'an Auto, China's fourth-largest carmaker, has responded with mass production of a fuel-battery hybrid model expected to be marketed this year for about $20,000, according to state media.
Chang'an has set a target of producing 50,000 Jiexun-HEV hybrid cars in 2010, the China Daily newspaper said.
The government is supporting the development of new fuel technologies under its long-term science and technology plan.
In 2006, it also issued a policy directive to encourage the development of small cars with low fuel consumption and low emissions.
'Small cars with lower fuel consumption are our advantage,' Zhang Xiaodong, the public relations manager of Geely, China's biggest private car firm, told DPA.
'Since saving energy and reducing emissions is the main trend, we are devising strategies aimed at the global market,' Zhang said.
The Chinese firms are targeting the still-growing domestic market and increasing exports to developing nations, as well as to the US and Europe.
The major growth area in the Chinese market in recent years has been for compact cars, priced around $5,000 and aimed at the budget market among young middle-class adults in China's affluent cities.
The most successful compact range, the Chery QQ, will this year face a new rival for urban cuteness in the black-and-white Geely Panda.
At the same time, Geely sees a resurgence of demand for larger sedans in China and believes it also needs larger models to increase its export sales, which reached about 30,000 of the 190,000 Chinese cars exported last year.
Geely has an ambitious plan to increase its overseas sales to 1.3 million vehicles annually by 2015, with assembly plants already operating in Russia, Ukraine and Indonesia, and another one planned in Mexico.
Chery, which exported 120,000 vehicles last year, has seven overseas plants and plans to build 14 more by 2010 to boost its sales in Russia, the Middle East, South America and South Africa.
The company signed an agreement last year to produce compact cars under the Chrysler brand for US and European markets.
Chinese firms produced about 6.4 million cars last year, with sales of about 4.7 million.
The world's third-largest auto market, after Japan and the United States, continued to be dominated by joint ventures of global firms such as Volkswagen and General Motors.
But Chery, Geely and other local companies sold more than 1.2 million cars.
Chery this month announced plans to build a foundry to produce 2.4 million engine blocks by 2010, saying the sourcing of engine blocks had been a bottleneck to its domestic and overseas sales' drives.
Du says the scale of Chinese firms is already so big that they discount the challenge of firms from other Asian countries and see the global auto giants as their only competitors.
'Actually, in developing countries there are not too many powerful car firms,' Du said. 'The main competition is from firms in developed nations, like Volkswagen.'
Ma Fanhua, assistant director of China's state laboratory for automotive safety and energy, believes Chinese exporters should continue to focus on developing economies in the near-term.
'I think Chinese cars are not powerful enough to compete with (global firms) in high-end cars, but we have a certain competitive power in the mid- and low-end markets,' Ma said.
'We should admit that in the traditional car industry, compared with Japanese and Western firms, we are lagging behind,' he said. 'On the small and 'eco' cars we have relative advantages in technology over Indian or Southeast Asian companies.
'But we cannot be too optimistic. Only by continuous efforts can we keep those relative advantages.'