Bloomberg News

China Standardizes Car-Maker Approval Rules as Auto Sales Slow

November 18, 2011

Nov. 17 (Bloomberg) -- China’s industry ministry standardized rules on approval of carmakers to limit new entrants as sales slow in the world’s biggest vehicle market.

The rules, aimed at advancing industry reorganization, state that companies applying to start a car-making business must meet certain criteria including scale of production and development capacity, the Ministry of Industry and Information Technology said, without providing specific figures. The rules take effect Jan. 1, it said in a statement dated yesterday on its website.

China, the world’s most crowded auto market, has more than 100 auto-making entities. Still, companies including Sichuan Tengzhong Heavy Industrial Machinery Co., a maker of structural components for highways, and Pang Da Automobile Trade Co., an auto dealer, have tried to expand into car production.

“Companies are profit-driven, and the fact that so many want to stay in or enter the auto-making industry shows it’s still a lucrative market,” said Zhang Xin, an analyst with Guotai Junan Securities Co. in Beijing. “The ministry’s announcement clarifies existing rules on getting approval to enter the market.”

Auto sales growth in China will probably slow to less than 5 percent in 2011, after surging 46 percent and 32 percent respectively in the last two years, as the government phased out purchase incentives, according to the China Association of Automobile Manufacturers.

Still, the combined sales targets of China’s largest automakers may exceed total demand by as much as 32 percent by 2015, as companies continue to add capacity by investing in new plants, according to data compiled by Bloomberg.

The standardized rules may not have an immediate effect on resolving overcapacity in the industry, Zhang said.

“The best way is to let the market rule rather than by government planning,” he said.

--Tian Ying. Editors: Lena Lee, Suresh Seshadri.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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