Chinese Car Industry in Growing Period

The demand for automobiles from China will remain robust in 2007 and beyond, but overcapacity, a chaotic export system and falling profitability will continue to plague the industry, the State Information Center said in a document on domestic and global economic development in 2007.
The document says overcapacity remains the biggest headache for the China car industry. In 2006, the National Development and Reform Commission, China top economic planner, began to list car-making as an overcapacity sector. That year most firms became caught up in price wars as inventory kept rising.
The document says that if the government encourages more firms to enter the sector by not raising industry thresholds, bankruptcies, unemployment and unpaid bank loans will inevitably result.
In 2005, China had 1,025 auto exporters, of which only two had exports valued above US$ 100 million and only eight had exports above $ 30 million. Another 204 firms each exported just one auto.
The document says China auto export industry produces mostly duplicated products targeting low end to mid range markets.
The document says China will lose its competitive edge in car exports because of rising production costs. And the price-slashing tactic generally adopted by Chinese car exporters will damage the international image of made in China cars, as some companies cannot provide after-sale service when products are sold at such low prices.
Though China car makers reaped big profits in 2006, the trend is not sustainable on the long term, said the State Information Center document, citing a worsening supply-demand imbalance that will be exacerbated by the rising cost of materials.
However, despite all the negative factors, the document said the demand for cars from China in 2007 will rise by 18 % over 2006 to 8 million units, while car output will reach 9 million units, 20 % higher than in 2006.
This article was researched and produced by Posicionarte for China Trading Company , 2007
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