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

The issue of overcapacity in China's auto industry has drawn significant attention from the National Development and Reform Commission (NDRC), which is closely monitoring the sector's rapid expansion. Ma Kai, the 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 focus on the growing problem of excess capacity in the auto industry. This signals a warning to both domestic and foreign investors, urging them to be more cautious in their investments. It is possible that the commission may raise the entry barriers for new auto projects in the future to prevent further overbuilding. At a recent conference, Ma Kai noted that the industry is currently constructing 2.2 million vehicles, with an overall production capacity of 8 million, leaving a surplus of 2 million. He also pointed out similar overcapacity issues in sectors like steel, coke, and electrolytic aluminum. Looking ahead, the NDRC plans to tackle overcapacity as a key part of industrial restructuring in the coming year. The goal is to take meaningful steps toward managing total capacity and optimizing the structure of industries with excess supply. Chen Bin, deputy director of the Industrial Development Department at the NDRC, warned that the situation could worsen during the "Eleventh Five-Year Plan" period. Without investment controls, auto production capacity could reach as high as 20 million units by the end of the plan—more than double the actual demand. To address this, Chen proposed improving the approval process for new auto projects. While current conditions are clear, there is concern that they may not be sufficient to prevent repeated construction and excessive investment. Zhang Boshun, secretary general of the China Association of Automobile Manufacturers Market Trade Committee, believes that although Ma Kai did not explicitly name the industries to target, the mention of excess vehicle production capacity serves as a "friendly reminder" for investors to proceed with caution. He added that while the "Eleventh Five-Year Plan" has yet to fully address the overheating in the auto sector, the NDRC has been actively investigating the industry's capacity. This shows the commission’s deep concern over the current investment trends. Zhang also pointed out that despite existing overcapacity, private capital and foreign investment continue to flow into the sector. This year alone, car sales reached 5.6 million units, yet there is still 2 million in excess production capacity. The NDRC feels it is necessary to issue a warning about this imbalance. Senior analyst Zhong Shi believes the NDRC’s main objective is to draw attention to the growing issue of overcapacity, signaling that it is becoming critical and needs immediate action. Zhang Boshun suggests that the most likely response from the government would be to increase the entry threshold for automotive projects. As for how foreign investors will respond, Zhang believes their decisions depend on whether they believe the Chinese auto market will grow steadily or face a downturn. With expected stable fiscal and monetary policies next year, the auto industry is projected to grow at around 10%, with sales reaching 6.2 to 6.3 million units. Foreign investors are likely to see this as a positive sign and proceed with careful but strategic investments. (Xiong Guozhi)

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