Overcapacity Looms in the Automotive Industry in China

There may be structural surplus in capacity of the industry of automobile in China, said National Development and Reform Commission, leading to concern about overcapacity.

Considerable drop in growth of the market may indicate risk of overcapacity of the automotive industry in China.

Reportedly, capacity of 37 leading automakers, of which production had accounted for 98% in the Chinese market, may overall be 31.22 million units in 2015; and the capacity in passenger vehicles were 25.75 million units, 81% of which were sold, while that of commercial vehicles were 5.47 units, of which only 52% were sold.

Low rate of capacity utilization may indicate surplus in structural capacity. There should not be too much invest on launch of commercial vehicle due to low rate of capacity utilization, according to experts.

Sales of vehicles of six leading automakers in 2015 may not make reasonable their target sales of 2020. Capacity of BAIC may increase to be 4.50 million units in 2020 with a rise of 12.6% on average in the following five years, based on its sales of 2.48 million units in 2015. Increasing launch of alternative energy vehicles may also lead to rise in capacity overall. Therefore, capacity is expected to be 50 million units by 2020.

There should be merge and acquisition among automakers in China, according to experts, in order to rule out some which could not meet requirement of capacity. Moreover, improvement in quality of product may serve to encourage market demand, increasing sales.

Plan on construction of capacity should be reasonable. Improvement in production technology and facilities may encourage utilization of capacity.

Drawback in market scheme may have allow for existence of automakers which have stop their production. Then development of governmental policy should serve to rule out those have failed to meet the requirements.

Increase in the number of automakers may result from unreasonable target at growth in GDP and protection regulation made by local governments. Then adjustment on governmental policy should be made in order to control capacity.