China's new measures to prevent excess vehicle production capacity will have little impact on major producers operating in the world's second-biggest vehicle market, according to analysts and companies.

 

Industry regulator the National Development and Reform Commission (NDRC) said in a notice last month that carmakers applying to build new plants must have sold four-fifths or more of their approved production capacity in the previous year.

 

A firm wanting to construct a second plant must have sold at least 100,000 cars or 50,000 sport utility vehicles or multi-purpose vehicles, the notice said. It also stipulated minimum sales requirements for trucks and buses.

 

Large firms unaffected

 

But Yale Zhang, director of emerging markets vehicle forecasts for auto industry consultancy CSM Asia in Shanghai, said the measures would not affect the business of large vehicle firms manufacturing in China as the vast majority of them had met government requirements and some even lacked production capacity.

 

"You see General Motors (GM), Toyota, Honda, PSA Peugeot Citroen, Ford ... and even Geely who has excessive capacity?" Zhang told China Daily.

 

All of these vehicle companies need to build new capacity to meet growing demand, he added.

 

Kenneth Hsu, vice-president of Ford Motor China, said the measures would not have an impact on the Detroit-based automaker's China business.

 

"We would not expand our capacity aggressively if there were not market demand for our vehicles," Hsu said.

 

Ford's venture with its Japanese affiliate Mazda and China's Chang'an Motor had an annual manufacturing capacity of 200,000 cars in Chongqing Municipality in Southwest by the end of last year, up from 20,000 units in 2003.

 

The venture is also building a new 160,000-car plant in East China's Jiangsu Province.

 

Wang Ziliang, a spokesman for low-cost carmaker Geely, said the company's production capacity in East China's Zhejiang Province and Shanghai has not been enough to keep up with its surging sales.

 

"We will have to build new capacity to satisfy mounting demand," Wang said.

 

The company, which has a combined capacity of 200,000 cars in Zhejiang and Shanghai annually, completed a 50,000-car plant in central Hunan Province at the end of last year. It is also planning to build a slew of new facilities in Zhejiang and Shandong provinces in the east and Gansu Province in Northwest.

 

"They (the NDRC) are investigating our new projects. We hope the government will provide room for our future development. I believe they will support us as a Chinese brand," Wang said.

 

Geely's 2006 sales surged by 34 percent to almost 200,000 cars from the previous year. It aims to sell 296,000 cars this year and 1 million units in 2010.

 

Molly Yang, a spokeswoman for the Volkswagen China Group, said the government measures would not affect the German carmaker's business as it halted plans to build new production capacity in China in 2005.

 

"We also have no new capacity plans in the years to 2009," Yang said.

 

Curbs target small firms

 

CSM Asia's Zhang said the government's curbs are mainly aimed at "small and inefficient carmakers and those preparing to enter the auto sector" that have generated and will exacerbate overcapacity.

 

There are more than 100 vehicle companies in China. Dozens of them produce less than 10,000 units a year.

 

According to NDRC data, total vehicle production capacity in China has reached 8 million units. The capacity will hit 10 million units next year and 20 million units by 2010 if all producers complete their plans for new capacity, which will exceed the country's demand.

 

Zhang said mergers and acquisitions (M&As) as well as consolidations are badly needed among automakers in China to stop further growth in production capacity and improve industry strength.

 

But the NDRC notice said governments at various levels "should vigorously boost trans-region consolidations and M&As" between vehicle producers in China to form large, internationally competitive groups, without providing specific measures.

 

The sector has seen a series of M&As in recent years.

 

(China Daily January 17, 2007)