Op-Ed Contributors

Debate: Auto industry

(China Daily)
Updated: 2010-10-11 08:00

Is China's auto industry facing overcapacity? Perhaps, says an expert. No, says another.

Zhang Zhiyong

Overcapacity alone not a problem

Is China's auto industry facing overcapacity? The answer to the question is: Overcapacity is inevitable at this stage in the development of China's auto industry. But it should be treated as a normal and necessary problem, and should not create excessive worry.

Judging by carmakers' annual productivity and sales, there is still huge scope for further growth. That many international giants and domestic enterprises are falling short of making enough cars to meet buyers' demand shows that the market is far from saturated. In fact, some popular car models have been sold out even before making it to the showrooms, and some people are paying thousands - even tens of thousands - of yuan to book a car before it even hits the production lines.

China's car market is still a seller's market, where prices are controlled mainly by the carmakers. It is not yet mature enough to be controlled by consumers. Therefore, overcapacity could serve as a catalyst for transforming it from a sellers' to a mature buyers' market, because such a situation might force enterprises to make more efforts to improve quality and adjust prices.

Besides, many carmakers are busy setting up new manufacturing plants in the country, signifying that demand is still rising. Pessimistic observers may cite the new plants to say the auto market faces overcapacity. But we cannot jump to any such conclusion without facts.

True, some carmakers may have planned and/or built new manufacturing plants, but they can adjust their productivity according to the demands of the market. The concern over overcapacity seems rather exaggerated.

The problem for many carmakers now is not overcapacity, but the lack of it. At least that's what the building of new factories signifies.

If the issue is discussed from the Chinese carmakers' point of view, increasing production is a major way for their development.

So far, none of the domestic carmakers can be classified as world-class. The yearly production capacities of domestic heavyweights such as the First Automobile Works and Shanghai Automotive Industry Corporation are below 2 million units. A carmaker has to also make quality vehicles to become a world-class manufacturer. Sadly, domestic carmakers are found wanting on both fronts.

Before China's domestic brands match their Western rivals in quality, they have to become big players by increasing their production capacity.

But can all domestic carmakers increase their output to a level where they can be called world-class? Of course not, any increase in an enterprise's production capacity has to be based on the overall consideration of its position in the market. This will lead to fierce competition and ultimately to combination, that is, mergers.

Hence, it's still too early to talk about Chinese companies selling cars to overseas markets. Overseas buyers won't buy the additional vehicles made by Chinese carmakers at least in the next five to 10 years. And anyway, even Chinese-foreign joint venture enterprises don't sell their cars to overseas markets.

But the production capacity of China's auto industry cannot be increased infinitely. China's huge population can make some carmakers optimistic, by prompting them to consider every person to be a potential customer. It is for the government to consider all the factors, including land, income, traffic problems and energy security, and work out a workable solution to the problem.

Lack of safety awareness and flouting of traffic rules by Chinese people have made the situation more problematic than what it actually should be. Rash driving has become common on roads across the country. Drivers jump red lights at will. Other traffic rules are broken at random. Many pedestrians, too, seem ignorant of traffic and safety rules. The result: chaos on the roads.

Chinese tradition and culture still influence people's choice of a car. Chinese people prefer bigger and high-fuel-consuming cars. Not many car-buyers think whether they need a big car (or SUV). Very few tend to think whether they are wasting more money and energy by buying bigger cars - or for that matter any car at all.

So, the problem is not about overcapacity alone, but about traffic and environmental awareness as well.

The author is an industry expert with the China Automobile High-tech Industrialization Commission. This is an excerpt of his interview with China Daily's He Bolin.