SHANGHAI (Reuters) -- China will soon unveil a policy to give local auto makers an edge over foreign companies, which could disrupt outsiders' plans to grab a slice of the booming market, state media and analysts said on Monday.
Automotive News reported in June that the Chinese goverment was circulating a draft of its policy to industry executives in China. .
One of the policy's key aims would be to ensure Chinese auto makers control half the market by 2010, threatening the likes of Germany's Volkswagen AG, they said.
And the government is also likely to encourage consolidation -- an idea first mooted years ago -- in a fragmented sector peopled with 120 auto makers, some of whom make few or no vehicles, state newspapers reported.
Analysts said Beijing -- nervous about the enormous influx of foreign investment and a near-unbridled expansion in capacity that could cause a glut and hit auto makers' profit margins down the road -- was trying to protect its own.
"What they (government) worry about is most of the Chinese auto makers will disappear, as sooner or later they have to relax the foreign investment limit," said Lawrence Ang, an auto analyst with Deutsche Bank in Hong Kong.
Foreigners can now hold up to 50 percent of a vehicle joint venture in China, unless the plant produces solely for export, in which case the overseas partner can own a controlling stake.
But Beijing is keen to get local auto makers to eventually develop their own vehicles without overseas help, and their inability to do so was the "Achilles heel" of the domestic car industry, the official China Daily said last month.
Foreign auto makers operating in China -- where car sales grew 82 percent in the first half -- say it is too early to comment on the policy.
"This is a draft auto policy, and we've yet to see what will be the final outcome," Kenneth Hsu, Ford Motor Co's spokesman, told Reuters.
"We have used some channels to indicate some of our ideas (to the government)," he added, declining to comment further.
Ford has a joint venture in the southwestern city of Chongqing with Chinese minivan maker Chongqing Changan Auto Co. Ltd.
Volkswagen, which commands about 35 percent of the car market, said it was upbeat on any future policies.
"We are confident that ... the expected policy draft will regulate positively," said spokesman Michael Wilkes.
Only a few local companies, including Geely Group and SAIC-Chery Automobile Co. Ltd., crank out cars of their own design.
Most domestic players, including the nation's top three auto makers -- First Automotive Works Corp (FAW), Dongfeng Motor Corp and Shanghai Automotive Industry Corp (SAIC) -- make cars based on foreign partners' models.
"The aim of the auto policy is to suit the new development conditions of the sector following the country's entry into the World Trade Organization," official news agency Xinhua quoted an official with the State Development and Reform Commission as saying.