China Curbs Auto Industry

Sam Beattie
Voice of America
December 27, 2006

China is extending economic restrictions to its auto industry, setting higher thresholds for fresh investment.  The new rules are part of official attempts to slow sectors of china's booming economy.  Sam Beattie reports from Beijing.

China's National Reform and Development Commission says automakers must prove their sales exceeded 80 percent of last year's authorized output before they can expand factories next year.

China has the world's third largest auto industry, growing more than 25 percent between January and November in 2006.  Analysts predict sales will exceed eight million vehicles in 2007.  But officials warn that the more than 100 automakers in the country could be headed toward a production glut.

Frank Song, the director of the Centre for China Financial Research at the University of Hong Kong, says the curbs on the auto industry are part of a wider strategy by the government to control its booming economy.

"The auto industry is one of the major industries in China, it's moving up very fast," he said.  "If this industry is somehow slowed down, then of course it expands [extends] and also affects other related industries, the demand for energy, the demand for resources.  All of this will affect it indirectly."

The auto industry restrictions come on the back of two interest rate hikes in 2006 and further curbs on construction and industrial project approvals.  China's gross domestic product is expected to grow more than 10 percent this year.  China has averaged annual growth of nine percent over the past 20 years.