China worries overcapacity in auto industry

There has been structural overcapacity in the automobile industry in China, according to Chinese authorities.

In 2015, production capacity of 37 leading automakers, of which production has accounted for 99% of the Chinese market, is expected to be 31.22 million units, including 25.75 million units of passenger vehicles, of which the utilization rate is 81%, and 5.47 million units of commercial vehicles, of which the utilization rate is only 52%.

Some agencies has even predicted that the production capacity might increase to 50 million units in 2020 while the market demand might be about 30 million units, leading to overcapacity of 20 million units in the Chinese market.

Too much invest on development of the automobile industry, due to adjustment on capacity structure by local governments, has led to rapid increase in production of passenger vehicles in the past years. But decrease in demands has led to surplus in supply of commercial vehicles, because there has been little change in the number of CV factories.

Fortunately, there has been growth in the Chinese market. In the first half this year, automobile production and sales were 12.9 million units and 12.8 million units respectively, increasing by 6.47% and 8.14% year on year. And growth rates also increased by 3.83% and 6.71% respectively yearly.

However, prosperity of the SUV segment may encourage automakers to invest more on development of SUV products, threatening to lead to overcapacity.

Combination of market regulation and governmental intervention may help to control overcapacity, according to Chinese authorities.