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China's state planner warns of auto production glut
Reuters | 2016/5/13

BEIJING -- China's auto industry is seeing the emergence of structural overcapacity as market growth slows, the country's top planning body and the automakers association said in a joint statement on Wednesday.

Idle production capacity rose significantly last year, as sales in the huge auto market tapered in an economy expanding at the slowest rate in 25 years.

The statement issued by the National Development and Reform Commission and the China Association of Automobile Manufacturers indicated that the problem may worsen, with automakers planning enough new assembly plants to produce 6 million more vehicles than existing capacity.

China had capacity to build 31.2 million vehicles in 2015, the two groups said in the statement, compared with sales of 24.6 million last year.

China's Premier Li Keqiang has vowed to take on excess industry capacity as the country shifts away from an investment- and heavy industry-led economy toward consumption and more value-added manufacturing.

The latest statement, issued to reporters at a press conference in Beijing, gave directives for how to avoid a production glut.

"First, as commercial vehicle capacity utilization is low, it is not appropriate to blindly increase investments in production capacity," the two bodies said.

"Secondly, investment in the battery space is hot, while companies are fragmented and technology and development levels are uneven. We must guard against low-level redundant investments."

The industry must strengthen development and commercialization of new products and technologies, raise production capacity utilization and launch cooperation in international production, according to the NDRC and CAAM statement.

Overcapacity has yet to hit passenger vehicles, however, with a "relatively reasonable" 81 percent capacity utilization rate for the segment, compared with 52 percent for commercial vehicles, the pair said.

Many of the production facilities being built were planned while auto sales in China were still booming at double-digit rates, rather than accounting for the new norm of single-digit sales growth.

Vehicle sales in China rose 6.3 percent in April from the same month last year to 2.1 million units, CAAM said. That compared with an 8.8 percent year-on-year rise in March, and a 0.9 percent fall in February.

In the first four months of 2016, sales grew 6.1 percent as compared with the previous year, the association said, just above its prediction of 6 percent growth for the year.

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