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Beijing to limit car production

China was set to launch new policies yesterday to better control the development of the auto sector in hopes of curbing a seriously overheated market, state-run press reported.

The new policies will change rules said not to be in line with the principles of the WTO, the 21st Century Business Herald reported, citing an official with the State Development and Reform Commission (SDRC).

Governments at all levels should neither build nor upgrade auto projects using fiscal funds, while commercial banks will refuse loans to unqualified auto investment projects, it said.

Local land administrators should also strengthen land management for designated auto factories and all auto makers should follow the laid out regulation system to win investment.

"Investment in China's auto industry is a case of having too much, too soon, too fast," said Michael Dunne, president of Automotive Resources Asia Ltd.

"If the government doesn't step in, the margins carmakers enjoy now could drop to nothing," he said.

China is expected to overtake Germany in the next two years to become the world's largest automaker after the US and Japan.

Volkswagen AG, General Motors Corp, Toyota Motor Corp and other foreign automakers have poured an estimated US$20 billion into the country, betting that the Chinese will exchange their bicycles for automobiles as the nation's economic expansion puts more money in their pockets. One in 120 Chinese now owns a car.

China is expected to produce a total of 4.2 million vehicles this year. The country's current total vehicle production capacity is 5.5 million units but is expected to increase by more than 6 million units over the next five years with planned investment of over 200 billion yuan (US$24 billion), 21st Century Business Herald said.

SDRC director Ma Kai (馬凱) said that while the fast development of China's auto industry was good for other industrial area such metallurgy, iron and steel, there was concern about investment flooding into the sector.

Boosted by an explosion in urban middle-class wealth, passenger car output in China is predicted to exceed 1.8 million units this year compared with 1 million units last year.

The expansion, however, has economists worried that the sector will go bust in the near term as a two-year old consumption binge for autos looks set to slow, even though the SDRC has said it will deal with over-investment.

China's more than 120 car companies are aggressively seeking new funds to fight for survival, with local governments lending a helping hand to backyard companies.

The industry surge is pushing up energy use beyond the nation's generating capacity. China, which suffered blackouts last summer, will probably fare more shortages next year, according to a report this month by China's biggest grid operator.

China announced in October that it would seek to slow in investment in the steel, automobile, aluminum and cement industries to curb raw material prices and ease power shortages.
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