By KEITH BRADSHER

CHONGQING, China

(When Ford built this factory in Chongqing, China, it shared advanced technology with its local partner. Photo: The New York Times)

VOLKSWAGEN and other carmakers used to prosper by sending outdated factory equipment to China to produce older models no longer salable in the West. But competition has become so fierce here that Honda is about to introduce its latest version of the Civic only several months after it went on sale in Europe, Japan and the United States. Toyota, meanwhile, is assembling its Prius gasoline-electric sedan only in Japan and China.

When Ford Motor opened its first production line here in western China just three years ago, it used a layout copied from a Ford factory in the Philippines to produce 20,000 sedans a year based on a small car design taken from Ford operations in India.

But this winter, Ford opened a second production line next door that is practically identical to one of its most advanced factories, the Saarlouis operation in southwestern Germany. The new line produces the Focus, the same small car it builds in Germany (but different from the Focus sold in the United States). And with continuing improvements to the first line, it will bring total capacity here to 200,000 cars a year by June.

The Chinese managers here are not even satisfied with that. "I want to learn from Germany and then improve on it," said Li Jianping, the factory's vice director of manufacturing.

Ford's success in rapidly expanding the scale and sophistication of its Chongqing operations illustrates how quickly the overall auto industry is expanding and modernizing in China. One requirement for a country to become an automobile exporter is to develop a highly competitive domestic market that demands excellent quality and efficiency, and China has managed to create just such a market.

American and European carmakers, including Ford, General Motors, DaimlerChrysler and Volkswagen, as well as Toyota, Honda and Nissan of Japan are introducing their best technology to their plants in China, and not only to compete against one another. They also face rapidly growing competition in the Chinese market from purely local companies like Geely, Chery and Lifan.

These indigenous Chinese automakers captured 28.7 percent of the market in January, the first time in many years that Chinese brands have been pre-eminent — ahead of brands from Japan (27.8 percent), Europe (19 percent), the United States (14 percent) and South Korea (10.3 percent), according to Automotive Resources Asia, a consulting firm in Shanghai.

The multinationals "really have to bring their latest models," said Yale Zhang, an analyst in the Shanghai office of CSM Worldwide, an auto consulting company based in the Detroit suburbs. "Even average consumers understand if this is not the latest model."

Multinational joint ventures in China produced a total of 2.3 million family vehicles last year.

In the race to be No. 1 in China, the world's fastest-growing car market, multinationals from the United States, Japan and Europe are falling over one another to share their latest designs, technology and manufacturing expertise with Chinese partners. But industry experts say that the sharing has helped China prepare to become a major car exporter within four years, increasing the pressure on G.M., Ford and other industry giants, which are already losing sales and market share to foreign rivals.

Few auto executives now doubt that the successful Chinese companies that emerge from the free-for-all in their home country will be ready to tackle world markets. "I've seen the Chinese vehicles in China from various, various brands, and I've said it's a threat that will come to the U.S., I think, by the end of the decade," said Thomas W. LaSorda, Chrysler's chief executive.

All of the multinationals rapidly expanding in China say that their main goal lies in serving the Chinese market and not in exports. Still, Honda is already exporting small cars from China to Europe, while DaimlerChrysler is negotiating to build very small cars in China for sale in the United States, probably under the Dodge brand.

Until the last few years, China's main advantages in the global auto manufacturing market were in its cheap labor and its talent for copying older Western designs, often while avoiding licensing fees, a practice that cut research and development costs to almost nothing.

Wages of less than $200 a month remain a big advantage for China, but it is developing another. Domestic and foreign automakers are starting with clean slates to build new operations, using efficient approaches and advanced management methods. It is similar to the way German and Japanese companies built new and more efficient factories starting in the 1980's, mostly in the American South, helping them to leap beyond Detroit's expertise.

G.M. and its local partner, the Shanghai Automotive Industry Corporation, built an extensive vehicle design and engineering studio in Shanghai that has just finished a redesign of the Buick LaCrosse for the Chinese market.

Raymond Bierzynski, the president of the development center, said companies must bring their best technology here if they are to build and sell the advanced models needed to compete in China. He acknowledged that this "provides a training ground for local talents in auto design and engineering for future sustainable development of China's automotive industry."