A man looks at a car which a model poses next to in this May 16, 2009 file photo taken at the Shanghai auto show. [Asianewsphoto]
Foreign carmakers are rushing to raise vehicle output or open new plants in China as brisk sales and a stronger-than-expected economic recovery in the first half have raised expectations about the world's biggest auto market.
"The rebound in car sales, which has accelerated in the past few months, is prompting car makers in China to ramp up production again as they have also put in place long-term expansion plans," said Frank Gong, JP Morgan managing director and China economist.
In the first six months, China sold 4.5 million passenger cars, a 25.6-percent increase from a year ago, as the government's tax reduction and incentive subsidy for rural residents spurred small car sales.
The better-than-expected sales surge buoyed carmakers' confidence, after they had curbed production initially due to the sharp economic slowdown late last year.
Vehicle manufacturers also see a bright future in China as the government reported yesterday that the gross domestic product grew 7.1 percent from last year to 13.99 trillion yuan ($2.05 trillion) in the first half.
Kevin Wale, president and managing director of GM China, raised his forecast for China's total auto sales growth rate this year from between 5 and 10 percent he made in April to about 15 percent, after his company posted a 38 percent year-on-year growth in the first half.
GM had earlier said it planned to double its output in China to 2 million units annually over five years.
GM's German rival Volkswagen AG also confirmed to China Daily that its joint ventures in China would expand production capacity in the second half to meet increasing demand, without divulging details.
"We will optimize the capacity of our plants in Nanjing and Chengdu for the sake of supporting our businesses in new markets," said the company in an email statement.
Japanese vehicle manufacturer Nissan Motor Co and Honda Motor Co also said they planned to boost production capacity in China as sales were brisk.
Nissan will lift production at its joint venture Dongfeng Motor Co by 20 percent from October. Its Guangzhou plant will be able to roll out 460,000 units a year, up from 360,000.
Honda will enlarge the annual production capacity at its Dongfeng Honda plant in Hubei province to 200,000 units by the end of this month from 165,000 units, which will help boost its total output in China to 610,000 units.
Moreover, car ownership in China is just 2.9 percent of the population - one of the lowest rates in the world - Credit Suisse said, even as it expects the number of car owners to surge fivefold in the next decade, touching an average of 148 cars per 1,000 residents by 2020.
"The natural demand is always here in China and we can also see huge potential in China's second, third-tier and even smaller cities," said Zhong Shi, an independent auto analyst based in Beijing. "For international automakers, those who cannot win in the China market will lose their future."
Last week, Italian auto giant Fiat Automobiles SpA, signed a contract with China's Guangzhou Automobile Group to form a 50-50 joint venture, producing cars and engines starting in the second half of 2011, with a total investment of over 400 million euros ($563.08 million).
Fuji Heavy Industries Ltd is also considering starting local production in China as demand for its sport-utility vehicles is growing.
Fuji is initially aiming for a production capacity of 50,000 vehicles per year, though it hasn't decided on where or when the production facilities would be established, said a company spokesman.