China's car companies should shift gear and focus less on expansion and more on product innovation in order to compete in the global marketplace.

"It is urgent for Chinese companies to be more active in the auto sector's production and technical innovation to build China's own brand reputation in the world," Feng Fei, director general of the Industry Economy Research Department of the State Council Development Research Center, said at the CBN (China Business News) Auto Summit Sunday.

According to Feng, the profit margin of Chinese car companies decreased sharply because of scale expansion which led to intensive competition in the domestic market. As a result, the profit margin dropped from 11 percent to around 5 percent, equal to the average on the international market.

The auto summit coincided with Sunday's opening of the Shanghai Auto Show where China's up-and-coming automakers displayed new sedans and SUVs. They also hope to showcase their ambition in order to expand abroad as global producers try to ramp up sales in China's booming market.

At an exhibition center on Shanghai's eastern outskirts, thousands of spectators crowded displays by Chinese companies while their U.S., Asian and European counterparts look at China as a potential place to boost revenues amid a sales slowdown in other parts of the world.

While booming sales last year made China the world's second largest vehicle market, the Shanghai show has become a key event for global producers to woo newly prosperous Chinese buyers and for domestic companies to get attention abroad.

Currently, China's car companies are mainly joint venture initiatives. State-owned and individually owned companies account for just a small part of the market share.

"Chinese car companies have developed quickly in recent years by acquiring advanced technology from joint ventures and it is time they built their own brand," said Feng.

Xia Zhibing, president of BYD Automobile, an individually owned company, agreed and said Chinese-owned brands are expected to take a prominent position in China in the future.

"Chinese car companies have an advantage on cost-efficiency," he said.

The market share of Chinese-made passenger cars accounted for 31.1 percent in the first quarter this year, up 28.4 percent from last year, according to statistics from National Passenger Cars Association.

"Some joint venture companies lowered the price in the first quarter to match the fierce competition," said Rao Da, secretary-general of National Passenger Cars Association.

"The car industry has become the pillar industry for China's economy," said Zhang Xiaoyu, vice-president of China Machinery Industry Federation. "We expect car output to increase to 9 million this year and car exports will continue to rise," he added.

China produced 7.3 million cars last year, surpassing Germany to become the world's third largest car producer. And sales in 2006 reached 7.2 million, turning China into the world's second largest market for cars.