China's auto industry not overheated, analysts say

Updated: 2010-10-18 09:29
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China's auto industry not overheated, analysts say

Cars are seen in a traffic jam in Beijing Sept 27, 2010.[Photo/CFP] 

SHIYAN, Hubei - China's automotive industry is not overheated despite its continued fast growth, an industry analyst said Sunday, amid recent concerns that overcapacity problems loom in the world's largest auto market.

"In the Jan-Sept period, China's auto industry saw its growth pace returning to rationality, which indicated the industry had entered into a stable, healthy and normal state," said Dong Yang, vice president of the China Association of Automotive Manufacturers (CAAM).

Dong was attending a ceremony in Shiyan city in the central province of Hubei, where Dongfeng Motor's commercial vehicles division is located.

Auto production in China was up 70 to 80 percent in January and February from one year earlier. But growth slowed to 22 percent in June, and to between 14 percent and 17 percent in the third quarter, which Dong said was a "very sensible" speed.

"Economists agree that China's auto industry had better expand one and a half times faster than its gross domestic production," he added. "The auto industry must maintain a double-digit growth to keep China's economy running in a sustainable way as the government continues its industrial restructuring effort and encourages people to spend money."

Analysts forecast that auto sales in the world's second-largest economy will surge 25 percent to 17 million units for the full year, providing a striking contrast to automakers fighting flat or slackening sales in the United States and other mature markets.

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Should China continue developing its auto industry?

China became the world's No 1 auto market last year, with sales topping 13 million vehicles. The market continued expanding rapidly as sales in the first nine months of this year climbed 36 percent compared to last year's level.

Meanwhile, global automakers are still developing massive expansion plans in the country, hoping the booming market will offset sales slumps elsewhere in the world.

All this gives fresh ammunition to critics who question whether the big market demand in China will last, with some scholars comparing the market boom to the baby boom in the 1950s and 1960s that left many trapped in cycles of poverty.

"China's public transportation system is witnessing rapid development and autos are durable consumer goods. Once people' enthusiasm towards cars cools down, the overcapacity issue will emerge," warned Ge Baoshan, a professor of economics at northeast China's Jilin University.

"As China's economy expands, more people are expecting to have their own cars," Dong argued. "You can't impose restrictions on the auto industry just because mega-cities like Beijing and Shanghai are plagued with traffic jams."

"As big cities are promoting public transportation to get people out of private cars, the automakers will have to penetrate into second and third tier cities in the country's vast west where more vehicles are still needed to improve transport."

Xu Changming, a researcher at the State Information Center, also believes it is unnecessary to worry about the alleged overcapacity. He said the capacity utilization of China's auto industry was roughly 120 percent in 2009.

"Modern enterprises, especially privately-owned ones such as BYD and Geely, are sensitive to the market and can make market-oriented plans for production, " he said.