Chinese automobile manufacturers continue to increase production capacity

Sales growth in the Chinese automobile market is still in the double digits. At the same time, competition in the market is reaching record levels. In addition to competitively pricing their products, manufacturers are making an effort to increase their production capacities. Dongfeng Peugeot Citroën and Dongfeng Nissan are among the many joint ventures engaging in ambitious production capacity expansion projects. They are joined by several own brand manufacturers doing the same. However, some own brands manufacturers are blindly expanding production volume without paying adequate attention to other aspects.

Xu Changming, director of the State Information Center's Information Resource Department, points out that the conflict between automobile production capacity and sales demand of own brand automobile manufacturers. Great Wall is one good example. Following the completion of its Tianjin Binhai New Area production site in 2011, Great Wall was able to boost its production capacity by 200,000 vehicles. However with the manufacturer's sales falling drastically over the past few months, the capacity utilization rate has been falling in turn.

It isn't uncommon to see manufacturers suffering from decreasing sales participate in projects to expand production capacity. Many of these manufacturers are hoping that gaining national grants and local support can help them deal with poor sales performances. While market sales growth are currently strong, they are predicted to decrease over the next few years. Chinese automobile sales are predicted to exceed 29 million units by 2018; however, at that time the country's total automobile production capacity is expected to be at least 31 million units. As the gap between supply and demand grow, so too are production volumes becoming less effective.

Another aspect of concern is the country's high automobile inventory levels. In September the inventory index level for joint venture enterprises totaled 1.36 points, down nine percent from the previous month, while those of own brands totaled 1.5 points, down four percent. However, the index level for imported automobiles is a high 2.2 points, close to the danger point.