By on September 5, 2010

If you think China’s auto growth is scary, then you find yourself in rare agreement with China’s central government. China’s 30 (!) major (!) auto makers had a production capacity of 13.59m vehicles by the end of 2009. Chinese bought 13.64m units. This year, it will be much more. By July, Chinese had already made and Chinese had already bought more than 10m units, according to data released by China’s Ministry of Industry and Information Technology.

Chinese buy more than just cars. They have bought (well, leased) enough land, buildings and machinery in order to more than double car output by 2015. With the current expansion and investment plans exercised, China will have production capacity for a mind-blowing 31.24m units by the end of 2015. That according to Chen Bin, head of industrial coordination at the National Development and Reform Commission, the nation’s economic regulation agency.That’s more than six (!) times the U.S. production in 2009, and three times the U.S. auto production in the heydays of 2007. You are not the only one to get worried now. Even China’s NDRC thinks that might be a bit much.

The production capacity in place could exceed demand, a worried Chen said at the International Forum on Chinese Automobile Industry Development in Tianjin. Unchecked expansion of China’s auto industry must be “resolutely” stopped, said Chen Bin according to China’s state news agency Xinhua.

The comments weren’t as much directed at the automobile industry as they were at parts of the Chinese government. Encouraged by the industry healthy profits and economic benefits, local governments had been making “blind” efforts to open new factories and expand capacity, Chen said. Twenty-seven of the country’s 31 provinces, autonomous regions and municipalities have plants that are able to produce finished vehicles.

Chen is worried about excess capacity inviting vicious competition, and hurting profits. Bringing out the big guns, Chen warned that unchecked growth may even threaten sustainable development of China’s economy.

Unrealistic output quotas for auto makers, and preferential land and tax policies for car makers must stop, said Chen in the direction of provincial governments that cut those deals.

Mind you Chen is talking about going easy on adding more capacity on top of  the 31.24m units, for which planning and building is already under way. Chen is most likely more worried of competition than of a lack of demand. Using a – for Chinese tastes – moderate annual growth rate of 20 percent, China could buy more than 40m cars in 2015.

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13 Comments on “China’s Government Worried About Unbridled Auto Industry Growth...”


  • avatar
    mythicalprogrammer

    Jeez, is this their bubble? Maybe, while as much as I like USA to be in a better power position again and China not breathing down our neck, there might be consequences when China’s bubble pop. Economists are predicting a bubble for China because of their currency manipulation, but they don’t know when the bubble is going to pop or what is the cause of bubble. The longer they wait for the bubble to pop the bigger the impact of the bubble is going to cause. =/ LOL, build more freeways! Well, I guess this is good. China consume more oils and forces us to move on to better technologies. I think we can be a leader in green technologies. Moving forward with new technologies and being leaders in it will secure our number 1 spot as a economic powerhouse.
    By 2015, helium prices won’t be subsidize any more, and since USA control 90% of it, what now China?

  • avatar
    Trend-Shifter

    In China you have extremes beween the rich & poor.   The present automotive landscape mirrors this wealth distribution. 

    Here is how I see the market segments in China….
    1)  The working middle class (not business owners) that do not own an apartment are focused on housing.   They are holding back on auto purchases.  
    2)  The working middle class that already own an apartment are now ready to buy a vehicle.   This is the group that will buy the Mazda 3, Ford Focus, Honda City’s of the world.  They do NOT want a China low end car, they want a car with perceived quality.    That is why I think BYD could see problems.  The consumer is getting smarter that a copy of a Toyota Corolla or Buick/Suzuki HRV is not the same as the real McCoy.
    3)  For the working class, a car or apartment are totally out of reach.  They cannot even consider a used low end China car.       
    4)  The business owner wants his primary vehicle to be a reflection of success to his customers.  BMW in China stands for “Business, Money, & Women”!    So both the rich and the aspiring rich MUST have a luxury vehicle.  
    5)  The other catagory is government cars.  Most officials do everything possible to justify purchase of a luxury vehicle. 
    6) The balance of vehicles are for actual business functions such as vans, pick-ups, etc. These are usually the lower end vehicles such as Wuling vans.

    If you look at this mix, you can see that China auto manufacturers are not sitting too well.   
    That is why the government totally allowed Geely to buy Volvo.  

    On the opposite side of the spectrum, Chinese auto manufacturing would need to export to western economies to have growth if capacity was met.     Delaying this event gives them more time to invest excess profit margins and learn (steal) technology for a future date when they will need to be more competitive in their home market.  

    Presently mid to upper level vehicles have a 25 to 100% price premium over similar models in the USA.
    If US auto manufacturers were smart, they should silently push the US government for opening up the Chinese market and stand firm on correcting currency valuations.   The USA could then export vehicles to start to relieve our trade deficit.  This while keeping technology from China joint venture partners.  You don’t think that we couldn’t sell boatloads of Mustangs and SUV’s in China if we could control the mark-ups?    We could break down trade barriers using the “mirror” approach on trade policy if they do not reciprocate?  

    Vehicles are the largest dollar amount in trade with Japan, even over electronics.     That illustrates the importance of the automotive export market and how it could benefit the US.

    Point of manufacturing is what makes an economy, it doesn’t matter the company’s origin.  The US should attempt to be the worlds automotive export platform using a weaker dollar/yuan relationship and lure all multi-national automaufacturers here to safeguard their technology rather than investing in China. 

  • avatar
    Eye Forget

    “You are not the only one to get worried now.”
    Sorry, not worried at all.
    “helium prices won’t be subsidize any more, and since USA control 90% of it”
    Any country with natural gas has the ability to extract helium.  The fact that few have bothered is a good indication of its economic worth.

  • avatar
    Monty

    Bertel:

    I don’t know enough about the Middle Kingdom to make any wild assumptions, but isn’t 30 million units an achievable target, considering the population base and the huge growth potential of the Chinese economy?

    What I wonder about is how the various levels of governments are planning to deal with the huge expansion of the infrastructure needed for several hundred million cars on the road. What are the far flung provinces doing for highways? Is there a correlate growth in construction?

    To be honest, it’s fascinating to watch the dominant economy of the era being surpassed by the new economic super-power, similar to what people a century ago witnessed, as the American economy superceded the British Empire.

    And after watching the video of the nine day traffice jam in Beijing, I am curious as to why I didn’t see Volvo or Freightliner tractors. Is there any foreign presence of truck manufacturers? In North America, Freightliner, which is owned by Daimler, is the dominant name, with close to half the market, and Volvo and Fiat seem to be the big Euro outfits, yet I didn’t recognise any familiar logos on any of the trucks. Are the heavy truck manufacturers home grown, or Asian marques?

    • 0 avatar
      Znork

      Volvo have been shipping trucks to China since 1934 and produce heavy trucks locally since 2004, so they’re there (altough Volvo sold their shares in the JV less than a month ago). But quality costs money, which is why the domestics have such a huge share of the market. A foreign brand truck will easily cost around $100,000 while a FAW or Foton sell for around $40,000.
      For the first seven months of 2010 the chinese heavy truck market have accounted for some 650,000 units, compared to the 59,000 units sold in the US so far this year.

    • 0 avatar
      gimmeamanual

      Many roads in far flung provinces are glass-smooth and empty.  Outside of holiday weekends, you can drive from Guilin to Yangshuo at 80mph and never see a soul.  Once you get out of the major urban area, there really aren’t a lot of vehicles.  In the major city centers, very crowded, which is where the traffic/plate/registration measures are happening.

      As far as heavy trucks, there are a couple things keeping imports/JVs from being as successful as the local boys.  As Znork points out, quality costs money, and they aren’t interested in buying an axle from Arvin-Meritor when they can get the same one cheaper from Fuwa.  The trucks are abused in such a way that paying for quality parts your customers won’t maintain doesn’t make sense, as they’ll be mad at service part costs, never mind initial investment.  Another consideration is emissions control; many of the major truckmakers that sell in US/EU have strict emissions targets to hit, and those regs haven’t hit China’s trucks yet (I think), so a dirty rusty smoke-spewing blue FAW is still kosher.  Cars are under different emissions targets, and in many cities must be China/EU4 or they can’t be registered or even driven inside the city’s main ring.  All of the new car engine programs that I see being produced here are EU5 compliant.

      Sunny day in Shanghai with puffy white clouds.  The parasol-hidden women are terrified and long for smog’s return.

  • avatar
    obbop

    There will be ample infrastructure to convert heavy industry to war production.
     

  • avatar
    chuckR

    Thanks to the one child policy, they now have tens of millions of young(ish) single men with no prospect of a family life. This is a recipe for civil unrest.
    By one estimate, China has 65 million empty apartments owned by people who wanted a hard asset to invest in. There is a city with room for 250000 people called New Ordos. Empty. I don’t want to be around if that bubble bursts.
    Cars may be the least of their worries.
     

  • avatar
    50merc

    “By 2015, helium prices won’t be subsidize any more.” Huh? A recent Wall Street Journal article said Congress required our entire helium stockpile to be sold within a few years, regardless of price, and as a result helium is so cheap there is no incentive for conservation or recycling. What subsidy?

    • 0 avatar
      charly

      Selling it not for the market price but for the clearing price is subsidizing as the government would make more money if they released the helium on the market more slowly

  • avatar
    AaronH

    Why is 40m units per year so difficult to comprehend?
    It seams a reasonable number in China.

  • avatar
    dartman

    Wow!… China’s like Mexico on a HGH/steroid bender.  If Fox and Friends think a couple of million Mexicans are a problem, wait a few years when a couple hundred million Chinese say: “screw it…let’s go to CaliTexaZona..

  • avatar
    djkenny

    Such opportunity to do it right. What does China do? become a mini, over crowded, more polluted USA.
    Try trains, use your bikes, alternative energy… not roads jam packed with carbon emitting, stress inducing, fat body enabling cars.
    Not a sustainable plan and a sure fire way to create a massive collapse economically too boot. Short term thinking and gains. Sociopath Style.


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