China's booming auto industry opened a new era as an exporter of premium-priced cars Friday when Volkswagen unveiled the first sedan made in China for sale to upscale Western drivers.

Most foreign automakers setting up operations in China are focusing on a domestic market that is the fastest-growing in the world. For decades, China has exported low-priced trucks, buses and other vehicles — mostly to developing countries.

Media people look at a new VW Polo made for Australia during an off-line ceremony of Shanghai Volkswagen's Polo on Friday Nov. 28, 2003 at Shanghai Volkswagen in Shanghai, China.  [AP]

But so far, the economics of carmaking in the top ranks of the industry have worked against exports. Most components are imported, and strong demand has kept prices high.

So Volkswagen's decision to produce 600 Polos for export to Australia was seen as significant. The company has said it plans to export Chinese-made cars to 84 countries within three to five years — if it can bring down costs and improve quality.

"They've been building capacity and probably want to keep their options open," said Christopher Richter, an industry analyst with HSBC Securities in Tokyo. "After all, what if the Chinese economy slows down?"

Bernd Engelstaedter, Shanghai Volkswagen's technical executive director, said the company will decide how to proceed after seeing how its inaugural shipment of Polos to Australia is received.

Asked whether China was likely to become a major auto exporter, Engelstaedter said, "It's just a question of time. The Chinese market is developing very quickly."

Honda Motor Co. says it plans to start exporting from China as well, opening a factory in the southern city of Guangzhou next year to make subcompact cars for sale in Asia and Europe.

Chevrolet Venture minivans made by General Motors Corp.'s joint venture in Shanghai are sold in the Philippines, but the company says it doesn't plan to make China an export base.

"Our focus remains in the China market. China is such a huge market that we could sell all of our output here," said GM spokesman Raymond Chow.

Folker Weissgerber, a VW board member, was on hand when reporters were shown the first silver Polo made at the cavernous Shanghai plant, run by Volkswagen and a Chinese partner. He said the car "meets all international standards."

"This proves Shanghai Volkswagen is a truly international competitor," he said.

The Polo bears the company's name in Chinese on its tail, but an executive said that might be switched to English.

"Australians might not be able to read the Chinese characters," said Chen Zhixin, managing director of the joint venture.

Volkswagen entered China in 1984, investing $66 million in a joint venture with Shanghai Automotive Industrial Corp. and China National Automotive Industry Corp.

Since then, Volkswagen has spent more than $1.7 billion in China and extended the terms of that 25-year venture by another 20 years. The Polo factory has turned out 70,000 cars for sale in China since it opened last year.

The German carmaker holds about a 38 per cent share of the Chinese auto market. Shanghai's taxi fleet is made up almost entirely of locally made VW Santanas.

According to investment bank Goldman Sachs, China accounted for 80 per cent of Volkswagen's worldwide profits in the first half of this year. The company recently moved its Asia-Pacific headquarters to Beijing.

VW's Polo plant is located in Autocity, a $533 million industrial park that planners say will eventually be bigger than the auto production zone encircling Toyota's headquarters near Nagoya, Japan.

China is one of the world's biggest auto parts makers. Its domestic automakers are a jumble of more than 120 small companies, which officials say will be consolidated into a handful of big groups more able to compete for a share of the world market.

For now, only foreign producers in China have the technology and size to sell to affluent Western buyers, said John Bonnell, an industry analyst.

"It's going to be the name 'Honda,' not 'made-in-China,' that sells the cars," he said.

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