Don't get too excited about the news that's streaming out of China this week, most of which is about plans for new investment by automakers that want to crank up their capacity to build and sell cars there.
This week we've learned that:
But there's an issue.
There already is overcapacity in China, and it's not going to go away.
Since 1990, the operational capacity utilization rate has risen steadily as demand grew faster than capacity was brought on line, according to data from PricewaterhouseCoopers AUTOFACTS. That's operational capacity, which is what the plants are actually operating at, which is the most conservative measure of capacity.
The rate peaked at slightly more than 70 percent last year and is expected to remain there this year. But even before the latest announcements this week, AUTOFACTS projected that by 2006 the utilization rate would dip below 70 percent and plateau there for several years.
Right now, AUTOFACTS figures that Japan is running at 87 percent, the United States is at 80 percent and Korea is running at 72 percent of operational capacity.
China is still expected to be the second largest auto market behind the United States, but the capacity that's being added is more than enough to meet demand in China.
By 2011, China should be operating at 74 percent of capacity while Japan is at 88 percent, the United States is at 89 percent and Korea is at 69 percent.
Chris Benko of AUTOFACTS warns that achieving an acceptable return on all this new investment will require an export strategy.
Exports were always in the cards for China, but added capacity now means that exports from China -- and Korea -- must increase sooner rather than later, and at a much quicker pace than previously expected.
All this means that this week's news from China eventually will translate into more global overcapacity and even tougher price pressures.
What happens in Beijing and Shanghai will affect the price of Chevys in Topeka.
Just what you wanted to hear, eh?