China's auto industry maintained a healthy growth rate despite a big decline in profitability in 2004, experts said.

The auto making industry reported a decrease in profits of 11.74 percent over the first ten months of 2004, with three in the red among the total 15 state key enterprise groups, according to statistics released by the China Association of Automobile Manufacturers (CAAM).

The figures show that the average profit margin dropped from 8.6 percent in 2003 to about 5 percent in 2004.

"It is not scientific to just compare the performance of auto industry in 2003 and that in 2004. We must see it in a larger context," said Ren Shiyao, director of the Research Department of Industrial Economy of the Development Research Center under the State Council, or the central Chinese government.

He noted that 749 of the total 2,326 auto makers, or 32.2 percent, incurred a loss in 2000. "Compared with the past few years, the profit margin in 2004 stood at a relatively high level."

Shen Wuning, deputy secretary-general of CAAM agreed with him. "It is not at all sensible to judge from a few of losing auto manufacturers that the whole auto industry is to suffer a loss."

In general in 2004, China's auto industry in line with major sedan makers making profits, such as the Shanghai GM, Shanghai VW, FAW VW, Guangzhou HONDA and Beijing-Hyundai, Ren said.

Net profits of the auto industry went down continuously from the mid 1980s to 2000, from 12.86 percent in 1982 to 3.82 percent in 2000.

The profit-sharing pattern in the country's auto industry is just at a transitional period, pointing towards the expected decline of the industry's average profit margin.

"Now auto manufacturers tend to share profits on average. Time is no more when China's auto industry was making exorbitant profits," Shen said.

Experts said the industry's actual profitability has improved as automakers now make profits by competing at a liberalized level rather than depending largely on government protection and capital injections as they used to do.

Well-performing businesses are able to gain above average profits while poor-performing ones will inevitably lose money.

Some accidental factors such as foreign exchange changes also contributed to the decline of profit margin in the auto sector in 2004.

The huge loss in numerous joint venture automakers reflects the appreciation of the euro and the depreciation of US dollar -- to which yuan is pegged -- as these joint ventures imported a large portion of critical auto parts from Europe which were sold in euros.

The Dongfeng Peugeot Citroen Automobile Company Ltd. (DPCA) posted 334 billion yuan loss in 2004, or 540 billion yuan taking into account euro's appreciation.

"Without euro's appreciation, the company would not have posted such a big loss," said a senior manager with DPCA.

He said another major reason was that focusing on the European market, Peugeot Citroen (PSA), one of DPCA's shareholders, slacked off on the Chinese market, leading to the products gap in the past two years. DPCA will soon return to profits. 

(Xinhua News Agency February 1, 2005)