Guard Against Over-production of Automobiles: Economic Observation

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Last updated at: (Beijing Time) Wednesday, August 20, 2003

Guard Against Over-production of Automobiles: Economic Observation

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China's automobile demand has been rising rapidly in recent years, generally speaking, the auto industry presents a favorable trend of the integration of speed, quality and profits. However, stimulated by the high domestic market demand for cars, investments for auto-making and service and trade industries have been expanded drastically, reaching a total of hundreds of billions of yuan. Many departments, regions and enterprises take auto as a leading sector to boost economic growth, there are now 23 provinces and cities producing cars nationwide.

Of these investments, some are prudent decisions made through full feasibility studies and based on good enterprise performance and mature production techniques, but some others are hasty capital grounded on unsound market analysis, according to an official with the State Development and Reform Commission. A synthetic study, analysis and judgment show that the nation's auto market faces many fluctuations and is greatly influenced by the macro-economic environment. Investment arranged without taking market risks into consideration is bound to create an "investment fever" and give rise to a situation of over-production capacity.

From a worldly perspective, the official said, the traditional auto market is becoming saturated. Transnational auto-making giants have a serious excess of production capacity and are facing cut-throat competition. To adapt to this situation, the global auto industry witnesses the following two development trends. One is large-scale merger and regrouping, with enterprises becoming bigger in scale and market concentration raised remarkably. The other is accelerated pace of technological innovations. E-information products assume an ever-greater proportion and cars of new power, fuel and low discharge are gradually put into production. The proportion of new, recoverable materials used is also raised. The demand of technical regulations on security, environmental protection, energy conservation and precaution against burglars brought about by market competition and technical progress has been on the rise.

Apparently China's auto industry structure is lagging behind the world. By last year the nation had altogether 123 whole-car producers, scattering over 27 provinces, autonomous regions and municipalities. Among them only two had an output over 500,000 cars, eight over 100,000, while as many as 95 had an output of less than 10,000, including 70 with an output below 1000. Judging from the current development of the global auto industry, carmakers with an annual sale volume below 1 million can no longer survive on their own and those with 2 million are also facing regrouping. By 2005, China will have cancelled import license and lifted quote restrictions, after that, the Chinese market will merge with the world auto market and this would pose grim challenge to domestic auto enterprises. There will be huge risks of low-level redundant construction and reckless capacity expansion, and some enterprises will inevitably be eliminated in the process of market competition. These will lead to serious consequences brought about by increase of banking bad debts, unemployment and enterprise bankruptcy.

To push forward the sound development of China's auto sector, the State Development and Reform Commission is stepping up research on formulation of a "policy for the development of the automobile industry", which will be published soon. Its aim is to adapt China to the new situation after WTO entry, push forward structure adjustment and regrouping of the auto industry, expand enterprises' scale profits, raise market concentration and avoid scattered, disorderly and low-level repetitive construction. The policy will encourage auto-makers to enhance their R&D as well as technical innovative capabilities, actively develop their own products with independent intellectual property rights and implement brand-name operational strategy; it will also help perfect the legal management system of the auto industry and promote the coordinated development of the auto sector and other related industries, as well as the social environment.

After the release of the policy, related departments will strengthen legal management over the auto sector. The way of producing whole cars by depending on assembling parts will be restricted; producers who assemble cars with imported parts should pay whole-car tax; standards for newly-built auto-producing enterprises will be raised; new demands will be set for the technological development capacity and marketing service levels; related examination will be carried out on the technology source of new products; and the strategy for technological progress, energy-saving and sustainable development will be encouraged. Giving guidance to rational investment in the auto sector through the implementation of relevant supportive measures will further the sound development of the nation's auto industry.

By PD Online Staff Member Li Heng

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