China's Government Worried About Unbridled Auto Industry Growth

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.