Carmakers making a big bet on growth

Volkswagen assembly line in Shanghai. The auto giant and its foreign peers continue to build more plants. [Gao Erqiang / For China Daily]

Continued capacity expansion by range of foreign brands

Though growth has eased from the torrid pace of several years ago, foreign carmakers are betting on an ever-increasing market as they continue to invest in additional capacity in China.

Volkswagen Group last week began construction on a new plant in Changsha, capital of Hunan province, as part of its plan to raise production capacity in the nation to more than 4 million units by 2018.

Built by its local joint venture with SAIC Motor Corp, the facility is scheduled to begin operation in 2015 with designed capacity of 300,000 vehicles a year.

It will be the eighth car plant for Volkswagen's joint venture with SAIC.

The German carmaker also has four vehicle plants operated by its other partnership in China with FAW Group.

Volkswagen is just one of many foreign brands racing forward in a new round of expansion.

Last month, General Motors said that it will open four new plants from this year to 2015, lifting the company's total capacity in China by 30 percent to about 5 million vehicles a year.

South Korea's Hyundai Motor recently told Reuters news agency that the company is considering a fourth car plant with designed annual capacity of 300,000 in China, probably in the western region.

Hyundai's subsidiary Kia Motors Corp is currently building its third plant in the country, which will be completed early next year. It will boost the combined manufacturing capacity for Hyundai and Kia to 1.8 million vehicles a year.

Though a latecomer to the market, Ford Motor Co is on track to its largest expansion in 50 years as it doubles total production capacity in China to 1.2 million vehicles by 2015.

Japan's Honda Motor Corp is also moving to add new capacity. Its joint venture with Guangzhou Automobile Co will begin construction on a new production line this year with maximum annual capacity of 240,000 vehicles.

An alluring market outlook and constrained capacity are the main reasons for expansion by foreign brands in China, said analysts.

Although the market has slowed from the strong double-digit growth of 2009 and 2010, the long-term outlook for an upward trend hasn't changed, they said. Ryan Cui, an analyst with LMC Automotive, said the firm forecasts passenger vehicle sales will rebound to 10.5 percent growth this year and a stable increase will continue in the next four to five years.

He added that LMC doesn't foresee any chance of a decline.

Lin Huaibin, an analyst with IHS Automotive, agreed and said that a falling market "is impossible" unless the nation's economic fundamentals change. According to Lin, about 67 of every 1,000 people in China now have cars, a much lower ratio than Western markets.

Analysts also noted that concerns about excess capacity are mainly over domestic carmakers, not Sino-foreign joint ventures. A report released by China Galaxy Securities in January said domestic carmakers on average used only 58 percent of their production capacity last year, while Sino-foreign joint ventures operated at 90 percent.

Lin with IHS said over-capacity could be eased if domestic brands perform better in exports.