China's automobile market is expected to grow by 10 to 12 percent in 2005, with a market scale of more than 5.6 million units, an automobile expert predicted.

"With more manufacturers achieving more production capacities in the next two years, the auto market is still set to see a production surplus and fierce competition this year," said Jia Xinguang, a chief analyst with the China Automobile Consulting Corporation.

Jia said major factors including the government's financial policies and rise of materials prices would affect the production and sale of automobiles in 2005.

Tight macro-economic control, begun last year, to some extent has restricted the development of automobile market, which also happened in the previous macro-economic control in the 1990s, Jia said. In 1993, the growth rate of automobile production for the whole year dropped from 40 to 22 percent after macro-economic control policies were implemented in July.

With the rise of production costs and sustained price reductions, nearly one third of automobile manufacturers have experienced losses and one third of auto dealers have left the business. Profit margins saw a large overall drop in 2004.

Jia said the rising cost of materials and interest rates have increased automobiles' production costs, which to some extent affected the automobile market in the past year.

"Yet the shrinking of automobile credit contributed greatly to the so-called automobile market depression in the late 2004." Jia said, adding that fewer than one tenth of consumers purchased cars through credit in the second half of 2004, a sharp contrast to the one third who did so in the year's first half.

The ratification of five foreign-funded automobile financial institutions has had little effect on promoting car sales, due to unfavorable credit situations and stern operation limits, he said.

Jia said the rising of fuel prices and local policies of limiting automobiles with low air displacement have also had a great impact on the automobile market.

"Rising oil prices made people put off buying their own cars, and local policies prevented a number of consumers' purchase of low fuel-consuming cars," he said.

China's automobile market experienced three years of sustained boom that stunned the world after the country's entry into the World Trade Organization in 2001. However the sharp decline of themarket in 2004 caused a panic among the manufacturers and consumers.

Sector insiders said the decline of auto market is a sign of returning to a normal track of development following the eruption of people's purchasing desire in the past few years.

With a vast population that is becoming ever and ever more affluent, the Chinese market potential is surely appealing. But some seemingly tiny matters might obstruct the potential from becoming realized.

"China is not ready for the coming of an automobile society yet," said Jia. "Supporting facilities, including parking spaces, traffic control systems and car maintenance and repair systems arestill gravely inadequate."

(Xinhua News Agency February 18, 2005)