Volkswagen, Toyota and Honda have all said they are increasing production, even though output already exceeds sales.
The car makers are also ignoring warnings by economic analysts that the rapid expansion by foreign car makers would soon lead to a glut, forcing down prices and making operations in China less profitable.
At an auto conference in Tokyo this week, manufacturers said they planned to spend $10 billion in China in the next few years to chase soaring demand, even though the Chinese government has decreed that local manufacturers would have half the market by 2010.
China's car sales rose 60% last year to 1.2 million, making it the world's fastest growing major car market.
Consensus estimates put car sales at around six million units by the end of the decade, meaning foreigners would have to share a three-million market at that point if the government's goal is achieved.
Volkswagen wants to hold on to its dominant position with about 40% of the market, and Toyota Motor, Japan's top auto maker, said it wants 10% by 2010 from just over 1% this year -- a target higher than the current share held by number two player General Motors.
If the German auto maker, Toyota and the Chinese government all have their way, that would leave nothing for other foreign car makers.