In an effort to exploit nostalgia for China’s communist and colonialist past, two Chinese state companies have relaunched old brands – including Chairman Mao’s famous Red Flag limousine – to challenge foreign dominance of the country’s luxury markets.

China’s evocatively named First Auto Works (FAW) announced this week it would spend Rmb1.79bn ($263.3m) to re-raise the Red Flag brand, which has largely fallen into disuse along with the ideology that spawned it.

The money would fund a production facility with an annual capacity 30,000 units, to give FAW the ultra-luxury model it needs to boost profits and prestige.

Shanghai Jahwa, China’s largest cosmetics brand, has also revived one of its famous nostalgia brands, Shuang Mei, or two sisters. With a logo redolent of 1930s Shanghai, when the city was labelled as the Paris of the Orient, the brand has been renamed Shanghai VIVE, and is sold at the recently reopened Art Deco Peace Hotel on the Shanghai Bund.

Its packaging and advertising conjures visions of old Shanghai, in all its decadence. The brand ranges from Pride of Shanghai soap at Rmb220, to skin creams priced at more than Rmb1000, with a top price of Rmb1500 – at or above those for foreign luxury cosmetics.

The relaunch of the two brands heralds China’s coming of age as a retail culture, with Chinese brands increasingly eager to compete head to head with foreign brands. Localising luxury is part of Beijing’s plan to rebrand China as more than just a cheap goods factory.

“There are three ways for Chinese brands to enter the luxury market: partner with foreign brands, bring in foreign designers, or rebrand themselves using an old famous marque,” says Jiang Qingyu of Fudan University. He says high prices are not necessarily a problem: “[Chinese] consumers generally believe high price means high quality.”

But retail analysts are uncertain about the value of nostalgia appeal in the country: Shanghai VIVE “might create a sense of excitement for westerners, but not for most Chinese women”, says Shaun Rein of China Market Research in Shanghai. “Those were not glamorous time for most Chinese so they don’t look at it with the same longing and nostalgia as westerners.”

Launching a distinctly Chinese luxury car “might be quite clever” says Torsten Stocker of Monitor Group in Shanghai. Government officials and state-owned enterprise chiefs might want a Red Flag for official occasions “when the BMW, Benz or Bentley must stay at home”, he says. “But getting the quality and technology right will be key.”

“Consumers just don’t buy into the idea that a Chinese car is as good as a European high-end one,” says Mr Rein.

Chairman Mao launched the Red Flag in 1958 because he thought China needed its own luxury car. Now, after 52 years, FAW will try again to make that a reality.

Additional reporting by Shirley Chen in Shanghai