Analysis: China to cap auto output capacity, easy foreign brand localization to end

BEIJING (Xinhua) – Automakers will face increasing obstacles to expanding production capacity or getting a new production license in China and it may even be a thorough industry reshuffle getting underway.

It is generally anticipated by the auto industry circle after Chinese Premier Wen Jiabao delivered the latest government work report on March 5.

"We will control increases in production capacity, improve existing production facilities, encourage enterprise mergers and reorganizations, and increase industrial concentration and economies of scale, with the focus on the automobile, steel, shipbuilding, and cement industries," Wen stated.

The statement is widely believed to be the prelude of stricter limits to be imposed on the industry.

Overcapacity the underlying concern

Since 2009, the year the country's annual auto sales surpassed those of the US for the first time, China has been recognized as the world's largest auto market for three years in a row.

One after another foreign automakers, as if orchestrated, have all picked up the pace of their localization projects in the world's largest auto consumption market.

Meanwhile, according to the development plans of China's Big Four auto groups – SAIC Motor, FAW, Dongfeng Motor, and the Changan Group – their planned combined production capacity will exceed 21 million vehicles by 2015, and by then the production capacity of China's Top 12 automakers by sales will be as high as 40.4 million.

Li Weidou, general manager of FAW's import and export unit, points out that the danger of overcapacity in the industry is growing. China sold 18.50 million motor vehicles in 2011 Li predicts the capacity of the market will reach about 25 million units in 2015, way below the planned output capacity of over 40 million.

In point of fact, research shows that China's capacity utilization rate is low and several automakers have already been suffering overcapacity problems.

The utilization rate of passenger vehicle production capacity in China remained at 78.5 percent in 2011, and that of joint-venture passenger vehicle makers and homegrown firms was 84.6 percent and 60.2 percent respectively, according to the research.

Doors likely to close on foreign automakers seeking localization

Once China rigorously carries out its capacity control program, foreign automakers which have yet to make arrangements in the country are likely to find increasing difficulty in entering the market, analysts note, listing three half-way joint-venture projects that are likely to be affected.

      1. Jaguar Land Rover and CheAir Max 90 Ultra 2.0 Essenti