More intensive market competition and the rising price of energy and raw materials are challenging China's rapidly growing auto industry, casting doubts on the trend of the sector in 2008, the Shanghai Securities News reported.

Automakers' share prices also performed poorly due not only to China's sluggish stock market, but also to the uncertain future of the industry in 2008.

In the fourth quarter of 2007, funds began selling their stakes in automakers. In addition, high oil prices, gloomy economic future and cost factors will also exert pressure on auto companies.

"The fundamentals of China's auto industry have changed, and obviously the profit growth rate of the industry is slowing down," said Yao Hongguang, an auto industry analyst with United Securities.

"Fast-growing automakers will expand their production capabilities in 2007, and over capacity is inevitable," Yao said.

Meanwhile, a report released by the China International Capital Corporation Limited (CICC) in February also indicated that growth of auto sales slowed over the past five months.

CICC predicted sales amount, sales revenue and profit of the country's automobile industry will grow by 14, 15 and 14 percent respectively, and few sub sectors will suffer from declining sales at all.

Yu Bing, an auto analyst at Ping An Securities Research Institute, said an important reason for dropping auto share prices was concerns of indigenous brands. For example, 90 percent of Changan Automobile Co Ltd's yields came from investment projects such as Changan Ford Mazda and Changan Suzuki. But it lost 200 to 300 million yuan in self-developed brands.

But according to Zhu Yiping, director of the information department under the China Association of Auto Manufacturers, China's first-quarter vehicle sales totaled 2.58 million, up 21.42 percent year on year, good news despite a rising consumer price index, raw material prices and the southern China snowstorm and signaling the industry will continue robust growth in this year.

Insiders predicted that China's auto sales will increase by between 16 and 18 percent in 2008, and the compound annual growth rate over the coming five years will hit more than 10 percent.

Yu Bing said the fundamentals of the auto industry haven't changed so much except that growth of sales and profits will decline based on large base number last year.

(Chinadaily.com.cn April 15, 2008)