Countries with severe overcapacity in automobiles may raise the threshold for automotive projects

The issue of overcapacity in China's automotive industry has drawn significant attention from the National Development and Reform Commission (NDRC), which is now closely monitoring the situation. Ma Kai, head of the NDRC, recently highlighted that the country’s auto production capacity has already surpassed 2 million vehicles, raising concerns about potential overinvestment and market saturation. Experts suggest that during the end of the 10th Five-Year Plan period, the NDRC began to emphasize the problem of excess capacity in the auto sector. This signals a warning to both domestic and foreign investors, urging them to be more cautious. It is expected that stricter access conditions for new auto projects may be introduced in the future to prevent further overbuilding. At a recent national development conference, Ma Kai pointed out that the industry is currently building 2.2 million vehicles, with a total production capacity of 8 million, resulting in a surplus of 2 million. He also noted similar overcapacity issues in other sectors like steel, coke, and electrolytic aluminum. Looking ahead, the NDRC plans to address overcapacity as a key focus in industrial restructuring next year, aiming to control overall capacity and optimize the structure of affected industries. Chen Bin, deputy director of the Industrial Development Department, warned that the auto industry’s overcapacity could worsen during the "Eleventh Five-Year Plan" period if investment is not controlled. Without restrictions, production capacity could reach 20 million vehicles by the end of the plan, far exceeding actual demand. To tackle this, Chen suggested improving the approval process for auto projects, though he questioned whether current standards are sufficient to prevent redundant investments. Zhang Boshun, secretary general of the China Association of Automobile Manufacturers Market Trade Committee, believes that while Ma Kai did not explicitly name the industries to target, the mention of vehicle overcapacity serves as a clear warning for investors to proceed with caution. He also noted that the "Eleventh Five-Year Plan" has yet to fully address the overheating in the auto sector, and the upcoming economic conference will not classify it as an overheated industry. However, the NDRC has already conducted detailed investigations into the sector, showing its growing concern. Zhang added that the current surplus of 2 million vehicles is a serious issue, and the continued influx of private and foreign capital—despite existing overcapacity—is alarming. With sales reaching 5.6 million units this year and a production capacity of 2 million, there is still interest in expanding the sector. The NDRC sees this as a sign that a warning is necessary. Senior analyst Zhong Shi believes the NDRC’s goal is to highlight the growing problem of excess capacity, signaling that action must be taken soon. Zhang Boshun predicts that the most likely measure will be raising the entry barriers for auto projects. As for how foreign investors will respond, Zhang believes their decision hinges on whether they believe the Chinese auto market will grow steadily or face another downturn. With expectations of stable growth next year—around 10%—and sales projected to reach 6.2 to 6.3 million units, foreign companies may still see opportunities, but with greater caution. (Xiong Guozhi)

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