Overcapacity looming for auto sector

Strong demand has led to increasing capacity among auto manufacturers, but this could cause a potential overcapacity problem in the industry, an official from China's top economic planner said at a forum over the weekend.

Chen Bin, director of the Department of Industry under the National Development and Reform Commission, made the remarks at an auto forum that was held in Tianjin Saturday.

There will be an overcapacity problem in the next three to five years, as many auto firms are building new factories, Su Hui, vice president of the auto market division of the China Automobile Dealers Association, told the Global Times Sunday.

Auto sales are also set to fall as a result of curbing policies aimed at reducing traffic jams and air pollution in some major cities, he noted.

Currently, Beijing, Shanghai, Guangzhou and Guiyang have all set quotas on the number of license plates that can be issued, and more cities will follow suit, Su estimated.

"China already has an unutilized capacity of 6 million vehicles, which will rise to more than 9 million in 2016," KPMG stated in a recent report, citing a source at LMC Automotive.

"Overcapacity is already evident in some segments of the market, such as trucks," Fu Zhiyong, an auto analyst with Adfaith Management Consulting, told the Global Times.

Several large firms, including Shanghai General Motors and Beijing Hyundai Motor Co, have all reportedly disclosed plans to expand their capacity.

It usually takes three years for the effects of enlarged capacity to become clear, and the current capacity was built in 2009 when there were market estimates of a double-digit growth rate over the next few years, Fu said.

But in 2011, China's auto market saw only single-digit growth, he noted.

Competition will intensify and consumers will benefit, but domestic brands might lose some market share to foreign and joint-venture brands due to disadvantages in terms of brand and quality, Fu said.

About 109.7 million units of vehicles were produced and 109.8 million were sold in the first seven months of this year, up 4.84 percent and 3.56 percent respectively from a year ago, according to China Association of Automobile Manufacturers.