China to restrict new auto plant investments

China to restrict new auto plant investments

Chinese government aims to slow down the booming automobile manufacturing sector in order to interfere to the overheating economy. State Development and Reform Commission is expected to implement restrictions on new investments. Both foreign and local companies have established new plants as automobile sales have increased in the past two years. This situation creates fears of overcapacity. It is predicted that the government will allow only a minimum investment of Yuan 2 billion ($241 million). With this policy, large manufacturers such as Volkswagen, General Motors and Ford, which have invested in China in recent years, will provide benefit. Last year, domestic market grew by 70%. The world's leading automakers made huge investments into the country because of cheap labour and high import tariffs. Volkswagen now sells more cars in China than in Germany. BMW's first joint venture aims to double production from 25'000 units this year to 50'000 units in 2006. There is certainly going to be overcapacity in the market, if the boom goes like this.