Foreign car manufacturers are increasingly looking to secure a portion of the Chinese car market, which is predicted to grow by up to 40 per cent annually over the next few years.

Over two million cars were sold in China last year, with forecasts predicting this figure to jump to 20 million by 2020.

The soaring demand is fuelled by China's rapidly expanding economy, which grew by 9.1 per cent in the first quarter of 2004.

According to the Times, the most optimistic industry analysts expect car sales to surpass three million vehicles this year, overtaking the UK (around 2.6 million).

With opportunities like this car manufacturers are rushing to grab their slice of the market.

Helmut Panke, BMW's chief executive, commented: "The potential that exists here is tremendous. You can debate whether the bubble will perhaps burst, but even then the market will still grow."

The strong growth in sales has even been achieved in an environment hostile to foreign imports. Import duty accounts for over a third (37.6 per cent) of the cost of a BMW 760 in China, and this does not include an eight per cent consumption tax, 17 per cent VAT and 10 per cent purchase tax.

Car makers are therefore increasingly looking to start manufacturing operations inside the country. An imported BMW 325 saloon cost 700,000 yuan a year ago but following the opening of BMW's new £300 million plant in Shenyang last week, costs will tumble to 468,000 yuan.

Mercedes Benz also plans to open its own factory in China, while Nissan is to double its production in China through its joint venture with the state-owned manufacturer Dongfeng.

Similarly, Volkswagen is currently building its second plant that will take its annual Chinese production to 1.6 million vehicles within four years.

Components manufacturers are also starting operations in China, feeding off the back of this expansion by car makers. Domestically made goods will be vital to the success of foreign car companies given regulations that vehicles must use 40 per cent of locally sourced components to avoid harsh duties and taxes.