Economist: turmoil to catch up with China's car industry

GUANGZHOU (Kyodo) - China's local car manufacturing industry will face its toughest challenge in coming months as the "financial tsunami" arrives, a state economist said Wednesday.

Xu Changming, information resource department director of the State Information Center, told a forum on the sidelines of the 6th China (Guangzhou) International Automobile Exhibition that external factors are hard to tackle.

"The appreciation of the yuan, rising raw material cost and the global economy downturn will weaken the overseas consumption markets," Xu said. "The coming few months will be worse for the industry."

China's local carmakers produce vehicles for local and export markets, mainly emerging economies.

Countries such as Vietnam, South Africa, Ukraine, Russia and Iran have imported significantly fewer Chinese cars in the past few months, Xu said.

Both exports and local consumption dropped into negative growth in August and September, but went back up in October, compared with the same months last year.

Passenger car exports in August and September recorded a negative growth of 5.3 percent and 15.6 percent, respectively.

Although local demand for passenger cars in October grew, Xu added that while the drop in September was not that significant, October's growth should be attributed partly to the National Day holiday effect, when sales normally increase.

"The local carmakers comprise more than 80 percent of China's total car exports and will be affected most by weakened overseas market demand.

Guangdong, Jiangsu, Shanghai and Zhejiang are the biggest export-oriented provinces and can be expected to suffer most seriously, Xu said.

Other than external factors, overseas enterprises that set up joint ventures with local carmakers will also shift focus and draw up competition with local manufacturers who have long enjoyed the edge of low cost production.

Xu said local joint ventures of the "Big Three" U.S. carmakers might be affected because of the carmakers' own problems at home and in return Japanese and German joint ventures might take a bigger slice of the Chinese car market, closing in on their U.S. rivals.