China faces overcapacity

Automobile production is growing faster than the demand, study says

Peking. There will be significant overcapacity in China within a few years if the automobile industry continues investing in new plants at the current level. This finding comes from a PricewaterhouseCoopers study.

China's existing total production capacity -- 3.36 million units in 2003 -- is 1.4 million units more than the demand for new cars. The overcapacity will increase to approximately 2.5 million units by 2008, according to PwC. The average utilization rate of China's car plants will therefore fall to below 70 percent.

"China has 1.3 billion inhabitants. However, currently only 5 percent of the total population has an annual income of $5,000, which enables them to buy and run a car," warns China specialist Richard Spitzer.

He adds that the Chinese capital market is anything but stable, that the development of the road network is very slow and that larger numbers of potential car buyers can only be found in three regions (Peking/Tianjin, Shanghai and Guangzhou).

Spitzer says suppliers should therefore think about their investments very carefully.

"A fast return can not be expected," he says.

PwC believes that until 2011 the automobile industry will grow faster in the Asia-Pacific region than anywhere else. Automobile production will increase to 23.5 million units from today's 19.1 million, according to PwC.

The study shows that strong growth in production during the next seven years will also take place in eastern Europe (4.6 million cars up from 3.2 million) and Latin America (2.8 million units up from from 1.9 million).

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