China's tech companies and automakers have poured billions of dollars into smart-driving technology, a new battleground in the country's cutthroat domestic car market.

But Beijing has moved to tighten safety rules after a Xiaomi SU7 in assisted driving mode crashed and killed three college students this year.

The event raised concerns over the advertising of cars as being capable of autonomous driving.

On Friday, the State Administration for Market Regulation said Xiaomi's highway assisted driving system showed insufficient recognition, warning and handling ability in some extreme driving conditions.

That risked collision if drivers failed to promptly intervene, the regulator said.

Xiaomi will remotely upgrade standard SU7 models manufactured before August 30, 2025, the company said in a Q&A on the X-like social media platform Weibo.

"Xiaomi forever places user safety as its top priority," it said, adding that while no physical parts needed replacing it would manage the fix according to recall procedures.

The recall affects 116,887 cars, the regulator said.

- Fatal crash -

Remote recalls have become standard practice among automakers.

But the announcement reignited online discussion of the fatal SU7 crash.

Three students died in March after their Xiaomi SU7 hit a concrete barrier on an expressway in eastern Anhui province.

Before the crash, the vehicle was in Xiaomi's Navigate On Autopilot assisted driving mode, traveling at 116 kilometres per hour (72 miles per hour), according to a company statement at the time.

While travelling on a highway section with roadworks, the vehicle detected an obstacle ahead, issued a warning and handed control to the driver, Xiaomi said.

But seconds later, the vehicle hit a barrier at around 97km/h.

Footage posted online showed a car in flames on the highway and later the burned-out wreckage.

Xiaomi founder Lei Jun said on social media he was "heavy-hearted" and that his company would cooperate with a police investigation.

The crash sparked discussion online about Xiaomi's assisted driving functions, why the car caught fire and whether the doors could be opened in an emergency.

On Friday, a hashtag related to the recall was viewed more than 70 million times on Weibo.

Launched in March 2024, the SU7 marked an ambitious foray by the consumer electronics and smartphone giant into China's competitive EV market.

By this July, Xiaomi had delivered more than 300,000 SU7s, Bloomberg reported, citing the state-owned China Automotive Technology and Research Center.