China's automobile manufacturing capacity would increase to six million in the next five years, far exceeding market demand, Yang Hexiang, director of the Industrial Department of Industry Development Research Institute under the Chinese State Development and Reform Commission, predicted Saturday.

He was speaking at a forum on the automotive industry. Yang, who has conducted much research on the automotive industry since 1994, gave a systematic analysis of the problems China’s automotive industry is facing.

He said a huge amount of money had been poured into the automotive industry in recent years. More than 200 manufacturing plants were producing finished cars and about 4,000 making vehicle parts have been established throughout the country. The total annual production capacity was about 5.5 million automobiles.

Although heated investment was partly attributed to the growing market demand, it was also a result of the local governments’ active involvement in the industry, Yang said.

Many small plants make cars with much higher costs and their profits had unavoidably fallen, which was not good for expansion in the long run, he said.

The proportion of nationally designed cars produced in China was also very small, Yang said.

“In terms of technology, China actually acts as a processing plant for foreign automobile companies, particularly in the sedan sector, which has been dominated and manipulated by multinationals,” he said. Of the newly developed cars on the Chinese market in 2002, only 10.5 percent were designed nationally, he said.

In addition, many key materials and parts such as cold-rolled steel had to be imported, which also increased the cost, he said.

Taking into account low transportation efficiency, experts estimated that the average cost for a Chinese enterprise to make an automobile was 18 percent higher that that in a country with a developed automotive industry.

Moreover, the complicated procedures for buying cars, worsening traffic jams and a serious lack of parking place were still factors curbing the development of China’s automobile market, he said.

Apart from curbing overheated investment, Chinese enterprises should try to learn more from foreign partners and the government should make necessary policies to better protect this industry, Yang said.

(Shenzhen Daily September 20, 2004)