05 September 2011

China To Reduce Car Sales

This was always going to happen. I am only surprised it didn't happen sooner. China wants to be a power in the auto industry. It insisted on joint ventures to get technology transfer from the West to China, and then have strong Chinese brands. That hasn't happened to the degree hoped. Pressure on foreign manufacturers to have components made locally - not imported - and massive duty on fully built up cars shows the real intent. Stimulating the market with incentives has led to car makers increasing capacity with indecent haste. Now the market will be cooled and suddenly over capacity will be the problem.

Of course, there are congestion issues but why overheat the market aggressively? I could see it coming. So what will car makers in China do? Accept the fact they will have factories well short of full production or will they start exporting? There has been no opportunity to export so far when burgeoning sales meant meeting demand
within China was all they could do anyway. I wonder what pressure car makers will experience when reduced Chinese sales take full effect? Workers will have to be laid off. Western brands have plants to protect all around the world and they cannot unleash a flood of cars made in China. I wait with interest.

In summary: I suspect China doesn't really want a car industry dominated by foreign brands and not exporting much either.

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