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China's Expanding Auto Production Triggers Overcapacity Concerns
Jul 19,2010 16:46CST
data analysis

CHANGCHUN, July 19 -- While Chinese auto makers are busy expanding their share in the world's largest auto market, industrial experts have already begun to worry whether China's market would one day face overcapacity problems.

Ge Baoshan, deputy secretary of the Party committee of the School of Management, Jilin University, said China's auto market is booming at the moment, but it is a question whether the market boom will last.

"China's public transportation system is witnessing rapid development. Besides, automobiles are durable consumer goods." Ge said. He attributes the increasing market demand to China's recent economic development and a baby boom in the 1950s and 1960s.

"Once the consumers' enthusiasm towards automobiles cools down, the overcapacity issue will emerge," he said.

Meanwhile, car makers, including domestic producers as well as foreign-invested ones, are still developing massive plans to expand their production in China, as a number of ambitious blueprints were announced here at the 7th Changchun International Auto Expo held in northeast China's Jilin Province, where the auto industry is regarded as the pillar of the local economy.

Yan Hongbin, Deputy Manager for the Marketing Department of Dongfeng Nissan Passenger Vehicle Company, told Xinhua that with the completion of its second plant in 2012, the company is targeting at both manufacturing and selling one million units in 2013.

A report from the official news portal of China's eastern Zhejiang Province (www.zjol.com.cn) showed that, based on the production plan of China's 12 major auto manufacturers for the next five years, China's auto production would reach 32.5 million units in 2015, far exceeding the forecast of 22 million units in the blue book of China's automobile industry, which was released earlier this year.

"We believe in China's market capacity. As China's economy continues to expand, more Chinese people are expecting to have their own cars," Yan said.

China became the world's largest auto market as it sold more than 13 million vehicles last year, and the market kept rapidly expanding as sales in the first half of 2010 jumped almost 48 percent year on year to 9.02 million units.

But the market growth is slowing down, as China's auto sales declined 5.25 percent in June on a month-on-month basis, according to the China Automotive Technology & Research Center.

Data from pollster company AC Neilsen showed that, as a result of the decreasing impact of government stimulus policies and rising house prices, overall intention of Chinese consumers to buy an automobile in the next 12 months has fallen 21 percentage points from a year ago to only 32 percent.

Wu Xiaobo, executive vice dean of the School of Management, Zhejiang University, said the Chinese government should give more guidance to the auto industry to help them avoid the overcapacity risk, and auto makers should prepare strategies, instead of blindly following the market trend, which is currently positive.

Ge Baoshan also warned that for provinces that economically relied on the auto sector, overcapacity would not only bring industrial problems, but also social ones like the instability in the local fiscal and taxation systems.

"It is hard to solve overcapacity in China's auto industry if it does happen, since no other market can digest such huge capacity," Ge said.



excessive capacity

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