Foreign car makers who want to expand their portfolio in China will be expected to develop a low-cost local brand as well, they are being told.

Although the plan is not yet official policy, it is being discussed more often as foreign companies negotiate to either expand their existing plants or build new ones.

Philippe Varin, Peugeot-Citroen’s CEO told the Financial Times that developing a local brand was “part of the deal” in its new joint venture with Chongqing-based producer Chang’an, which is installing capacity to produce up to 200,000 cars a year from 2012 in Shenzhen. 

While VW has confirmed that it is in talks with its Chinese partners FAW and SAIC to develop local brands, it is something that GM has already done, recently launching its Baojun brand.

“We made this decision a number of years ago that it made sense to play in this area of the market,” said Kevin Wale, head of GM in China. 

He predicts that GM can sell 4m-6m Baojun brand cars in the next five years. “By itself, it is a bigger market than Germany,” he said.

Some reports suggest that as much as 30% of additional capacity would have to be devoted to the indigenous brand.

Mike Dunne, president of Dunne & Co, an industry consultancy, said: “Nothing is written down but, when automakers go to apply for capacity expansion, in their application it’s clear that they should have a plan for an indigenous brand with jointly owned product rights and some provision for new energy vehicles.

“Foreigners want more capacity; China is saying: ‘We want more own brands’.”