China urges automakers to prevent overcapacity

Shanghai, September 7 (Gasgoo.com) China's industry planning agency said automakers in the country should "keep their heads cool" to prevent overcapacity, even as it forecast a 28% jump in vehicle sales this year, media reported today.

Rapid sales growth may lead automakers to boost their capacity and output. However, it's unclear whether growth can be sustained in the long term, Chen Bin, chief director of the industry coordination department at the National Development and Reform Commission (NDRC), said on Sept. 5.

Helped by tax cuts and rural subsidies, China's automakers likely sold sell more than 8 million units of vehicles in first eight months this year, and the full-year auto sales in the country are expected to reach 12 million units, up 28% from last year.

"There has been more [auto] demand than supply this year but that's because of the government stimulus measures," said a Shanghai-based analyst. "There may be a risk of overcapacity in the future."

The auto tax cuts and rural subsidies are due to expire at year's end and the government hasn't said whether it will extend these programs into 2010.

China's vehicle sales jumped 23% in the first seven months to 7.2 million units, exceeding domestic production of 7.1 million, with excess inventory from last year making up the shortfall.