SINCE their inception, China's domestic carmakers were mainly focused on competition with international auto giants like General Motors and Volkswagen as the market in China grew into the world's largest.

Now they are facing a new threat. Sino-foreign automakers are now developing their own independent domestic brands targeted at the low end of the market at cities and inland areas. That's the end of the market where domestic automakers have thrived.

Early this month, SAIC-GM-Wuling, the minivan venture of General Motors in China, launched the first model under its independent brand Baojun in Chengdu.

The Baojun 630 mid-sized sedan, equipped with a 1.5-liter engine and manual transmission, is aimed at less wealthy consumers in China's second- and third-tier cities. Its sticker price is between 62,800 yuan (US$9,750) and 73,800 yuan.

The model will be gradually rolled out in other cities across China, according to Matthew Tsien, vice president of the venture.

"Our product is targeting the affordable entry-level market," said Tsien. "We really want to make sure that we produce vehicles that are highly reliable, attractive in styling but very affordable. We have seen over the past couple decades, the emergence of a very significant consuming public outside the main coastal metropolises."

The shift in trend is probably rooted in several issues. For one, the Chinese government has always wanted foreign carmakers to share their technology with Chinese partners as part of a strategy to boost the domestic industry.

The government has said approval for the construction of any new automobile plants would be contingent on commitments by automakers to build domestic brands in China.

Sino-foreign joint ventures have already grabbed half of the domestic Chinese auto market, mostly in the mid to upper range of passenger vehicles. The low end of the market has been left to domestic brands, which are generally cheaper and often of lower quality than either imported cars or joint-venture models.

The push to more interior, less populated cities by both domestic and joint-venture brands also reflects curbs on car ownership beginning to take hold in traffic-clogged cities like Beijing and Shanghai. No restrictions impede growth of car sales beyond the coastal fringe of wealth.

Last year, China's biggest cities accounted for only about 30 percent of passenger car sales, with the rest coming in smaller, inland areas according to Lewis Liu, director of Business Performance Services at KPMG China.

Of course, what China categorizes as Tier 2, 3 and 4 cities in more undeveloped areas are huge population centers by world standards. The city of Chengdu in western China, where the Baojun model was launched, is a market of almost 10 million people.

"The development of independent brands is a smart strategy for joint ventures," said Liu. "It allows them to protect their mid-to-upper markets while effectively moving into the lower end of the market dominated by domestic players."

"While the changes of the market dynamics, especially after the Chinese auto market over pass US becoming the world largest auto market, it is time for JVs to have their own key technologies, from full vehicle design, production process, to establish their own R&D system to satisfy the local market,"he added.

General motors and its joint venture Chinese partners said they plan to add one model a year to their Baojun brand, covering both compact and sub-compact segments in the next five years.

They aren't the only Sino-foreign joint venture seizing the opportunity.

Nissan's first domestic brand, the Venucia, or Qi Chen in Chinese, was built in partnership with Dongfeng Motor Gorp and is expected to go on sale early next year.

Dongfeng Nissan plans to roll out five Venucia models within five years including an electric car. The goal is to achieve annual sales of 300,000 units in China by then, Carlos Ghosen, president and chief executive officer of Nissan, said during his latest visit to China.

Guangqi Honda Automobile Co. started the new trend in 2007 when it began work on the industry's first joint venture domestic car - the Everus S1 (Li Nian S1). The model hit the market in April with sticker prices of between 70,000 yuan and 100,000 yuan.

Other leading joint ventures in China, such as FAW-Volkswagen, Dongfeng Honda, Beijing Hyundai, Changan Suzuki and Changan PSA, all say they are planning to manufacture local brands.

That's a direct challenge to a market now dominated by domestic carmakers such as BYD, Chery, Geely and Brilliance.

"Independent JV brands certainly threaten domestic brands because they can build on foreign technology, which is still considered the weak point for Chinese car makers," said Klaus Paur, managing director for Synovate Motoresearch in China.

Liu also agreed saying "The fully depreciated tools and processes, much efficient supply chain and even shared fixed cost base on production facility with other foreign brands will make JV's own brand models even more competitive on pricing with domestic brands."

Not only China's home-grown carmakers are confronting with new challenges, the trend of independent JV brand also put at risk the government's efforts to build the domestic car industry into a global powerhouse.

"The government's original intention in allowing the creation of joint ventures was to help Chinese companies boost their exposure to foreign engineering skills," said Fred Yin, general manager of the automotive marketing research at Sinotrust.

"But now it turns out that many international carmakers are taking advantage of older technologies to try to kill off domestic carmakers."

According to industrial insiders, the SAIC-GM-Wuling's Baojun 630 is based on the old manufacturing platform of the Buick Excelle, with some upgrades to interior and body design. Guangqi Honda's Li Nian S1 is an outgrowth of Honda's City compact sedan.

Klaus said he thinks international manufacturers will remain reluctant to share their most cutting-edge technologies with domestic carmakers, scuppering the aims of the government's technology transfer strategy.

Still, some hold out hopes for domestic automakers.

The capability of self research and development for JV's own brands appear to be week as they are all heavily rely on foreign partners.

Also, it takes time to form a complete self development for the JV's own brands and grow into mid to upper market as foreign joint ventures look at a quick return on its investment.

"The Chinese carmakers have the advantage of understanding the local market better than foreign automakers or even joint ventures," said Liu

"So focusing on customer's needs, building higher quality cars and improving their credibility with consumers could make all the difference in selling the cars of the future," he said.