DEBRECEN, Hungary (Reuters) -China poses a "very significant" competitive challenge to German carmakers, the head of luxury carmaker BMW's new Hungarian plant said on Wednesday, with Chinese rival BYD soon to start production in the country.

Under right-wing Prime Minister Viktor Orban, Hungary has become an important trade and investment partner for China, in contrast with some other European Union nations considering becoming less dependent on the world's second-largest economy.

BMW said it would start series production of its iX3 electric model at a plant in the eastern Hungarian town of Debrecen from the end of October, becoming the third major German brand to enter Hungary after Audi and Mercedes-Benz.

"China constitutes a very significant challenge, all of us can agree on that," BMW's Hungarian Chairman and Chief Executive Hans-Peter Kemser told a conference alongside local leaders from Audi and Mercedes-Benz.

"We must also see that Chinese manufacturers are arriving in Europe. That is a fact," Kemser said through an interpreter.

China's BYD plans to start production at its new electric-vehicle plant in southern Hungary by the end of 2025, while also investing $94 million to triple its local electric bus output.

Michael Breme, Chief Executive of Audi's Hungarian unit, said western manufacturers had lost market share in China and local brands now account for two-thirds of the market there.

"The Chinese market is simply too important to give up on," Breme said. "We need to find new strategies in the local markets."

Zoltan Guth, head of communications and external affairs at Mercedes-Benz Manufacturing Hungary, said the brand also aimed to preserve its market share in China with new or redesigned models to be launched in coming years.