On the same day, Chery announced in Beijing that it would cooperate with Johnson Controls Inc., based in the United States, to establish a 50 percent-50 percent joint venture and produce automotive interiors and auto parts in China.

Transnational cooperation may eventually position Chery as an international brand, but it is still in the early stages of development.

"Without a brand there will be no future, and technology is the backbone of a brand," said Yin.

From its first export deal to Syria in October 2001 to an export volume of 18,000 cars in 2005, Chery has ranked first for three consecutive years among Chinese car exporters. It has established 41 general distributors and an overseas subsidiary in 38 countries and regions. According to Yin, Chery's massive expansion is led by research and development (R&D). Every year, Chery spends about 1 billion yuan in R&D. By the end of 2005, the company owned 432 patents, of which 168 are invention patents. Many other invention patent applications are pending.

According to Feng Wutang, Deputy General Manager of Chery, it is generally accepted by the auto industry that the engine is of vital importance to the development of automakers. Chery not only owns the ACTECO engine, the first of its kind in China with complete intellectual property rights, but also 18 other engine models that satisfy Europe IV emission standards.

"At present, it takes Chery only 18 months to develop a new model," Feng added.

Chery is certainly an aggressive competitor.

"Chery also avoids passiveness in technology development and marketing," Yin said. "We can independently organize development, production and sales to meet the market demand at any time."

Sales good, profits needed

Guided by the principle of making "good cars affordable to Chinese people," Chery cars have been popular among consumers thanks to their good quality and low cost. As two price hikes of refined oil in China in 2006 increased the costs of the usage of cars, Chery still benefited. The company launched the idea of "setting the most reasonable price to the most oil-saving cars" to satisfy consumers, resulting in impressive sales.

According to CAAM (China Association of Automobile Manufacturers) statistics, in the first 10 months of 2006, Chery sold 234,436 cars, 50,000 more than its total sales in 2005. Further, the overseas market made great contributions. From January to October, Chery exported 36,835 cars, ranking first among China's car exporters.

However, Chery's profits are still not as satisfactory as sales volume. Owing to the large expenditures on technology development, smaller and smaller profit margins have become a difficulty for Chery.

Chery's sales volume in 2005 soared 100 percent to 180,000 units, but its profits shrank from 188 million yuan in 2004 to 95 million yuan, a decline of 49 percent. For every single car, Chery earned just 500 yuan. According to Guo Yong, Manager of the Business Information Center at Beijing Beichen Asian Games Village Automobile Exchange, since car prices are close to those on the international market in recent years, prices are decreasing fast. In the last few years, profits are not as voluminous as before.

Guo also holds that another reason for Chery's meager profits is that mini-cars account for more than 60 percent of its sales volume.

"Mini-cars are the least profitable, with profits of only 200-300 yuan, or no profit at all," Guo said. "But another source of profits for Chery is exports, which may relieve its losses."

Xia Zhibing, General Manager of BYD Auto Co. Ltd., suggested that since Chinese brands are not strong enough yet, independent domestic brands have to focus on occupying the market despite grim profits for a certain period.

Even though profits are low, Chery cannot give up the market. Competition is fierce in the Chinese auto market and costs could be reduced only with economies of scale. At present, Chery mainly seeks the assistance of bank loans.

"Cars below 50,000 yuan used to be the advantage of independent brand owners, who keep a firm hand on the mini-cars market with large export volume," Xia said. "But we predict that in the coming three to five years, domestic brands priced between 50,000-100,000 yuan will occupy the market."

Zhang Jianwei, Deputy Director of the China Automotive Technology and Research Center, also thinks that after years of study, independent domestic brands have improved their quality and established a reputation in the market for cars below 100,000 yuan. In the first 10 months of this year, domestic brands occupied 26.4 percent of China's passenger vehicle market, surpassing products of Japan, South Korea, Germany, the United States and France to rank first in terms of market share.

As for market expectations next year, Qin Lihong is full of hope, making an ambitious prediction: Sales volume of Chery will reach 400,000 units next year, ranking third among all players in China. In terms of exports, Qin estimates that the goal will be 80,000 units and may surpass 100,000 units.

"Chery plans to export 100,000 whole sets of cars and 100,000 engines," he said.

Figures from the CAAM indicate that the sales champion this year, Shanghai General Motors, saw its sales volume stand at 380,000 units. Currently, there is no automaker in China selling more than 400,000 cars annually.

However, independent domestic brands will survive and develop only if they are making money. As Chery looks to the future, it must consider not only expansion, but also the bottom line.