The company said it has signed an agreement with Tongji University in Shanghai on the development of the cars and would start commercial production in 2008.

"We plan to produce 5,000 to 10,000 hybrid-powered cars under the Maple brand a year initially," Xu Gang, chairman of Maple, said on Friday.

"In the long term, we expect hybrid-powered cars will account for half of our total annual sales." Maple will produce a demonstration hybrid car, based on its 1.5-litre Marindo, at the end of this year.

Hybrid means that petrol and diesel engines can power cars and produce electricity simultaneously. The electricity can also power cars, helping to reduce fuel consumption and exhaust emission.

But high costs represent the biggest hurdle against volume commercial production of hybrid-powered cars around the world.

"China does not lag far behind developed nations in the field," Xu said. "It is a good opportunity for us to develop hybrid-powered cars to enhance competitiveness.

"We will use self-developed engines and source transmission and other components in China to produce hybrid-powered cars. So we will be competitive in price." Analysts said hybrid-powered cars have huge potential in China as the nation faces mounting oil shortages and environmental pressures.

Automobiles will consume 138 million tons of oil in China annually by 2010, accounting for 43 per cent of the nation's total demand, according to a report from the State Council Development Research Centre, one of the Chinese Government's think tanks.

The proportion will rise to 57 per cent by 2020 because of the growing number of vehicles in China.

Foreign auto giants and other domestic car makers are also preparing to produce hybrid cars in China.

General Motors and partner Shanghai Automotive Industry Corp clinched a deal at the end of last year to jointly develop and produce hybrid and fuel cell vehicles in Shanghai.

Toyota also plans to collaborate with China's First Automotive Works Corp to produce its Prius hybrid cars this year in Changchun, capital of Northeast China's Jilin Province.

Chery Automobile, China's rising car maker in Anhui Province, is developing hybrid cars supported by the State and plans to launch the first one next year.

Maple's sales surged by 179 per cent year-on-year to 13,000 cars in the first half of this year, Xu said.