China's auto sector faces overcapacity problem

TIANJIN - The world's largest auto market faces a potential overcapacity problem after both production and sales witnessed explosive growth over the past decade, a government official warned on Saturday.

The robustness of the Chinese auto market since 2000 has come on top of growing appetite among Chinese consumers for cars and years of government support policies including tax breaks and subsidies for the sector, said Chen Bin, director of the Industrial Coordination Department of the National Development and Reform Commission, China's top economic planner.

"The great market demand has pushed many car producers to expand production, but this has led to problems such as poor industrial structure, brand incompetence, and inadequate innovation," Chen said at an international car forum held in Tianjin in north China.

Furthermore, a more severe issue is starting to bite -- both growth and sales of the car industry have slowed dramatically in recent years after astounding growth.

China in 2009 overtook the United States to become the world's largest auto market in terms of sales. Sales continued to surge in 2010, jumping more than 32 percent to 18.06 million units. However, growth sharply contracted to only 2.45 percent last year, with a slowing economy and the expiration of policy incentives for car purchases.

"Both the government and company management must clearly recognize that explosive market demand will not be seen again for a long period in the future," warned Chen.

The official said that a reasonable and stable growth will be conducive to the market's restructuring. He added that car companies should shift focus to improving the energy-saving and environmentally friendly aspects of their products, and making products that can compete with overseas rivals.