CHINA: GM chief dismisses overcapacity fears - report
A General Motors executive on Tuesday dismissed mounting official concerns of a looming overcapacity bubble in China's car manufacturing sector, Dow Jones reported.
Those worries reflect an inadequate understanding of the reality of China's car manufacturing industry, GM China Group's chief executive, Phil Murtaugh, told Dow Jones at a press briefing.
"Overcapacity is not an issue...if you take a look at what is really happening, companies are adding capacity incrementally as they forecast demand for two to three years in the future, (so) I really don't have a lot of concerns about a massive overcapacity problem," Murtaugh reportedly said.
Dow Jones said Murtaugh spoke on the sidelines of a demonstration of GM hydrogen fuel cell-powered vehicles in Beijing.
GM claims an 8.2% share of China's car market through domestic joint ventures with Shanghai Automotive Industry Corp. (Group), or SAIC, and Wuling Automobile Co, the news agency noted.
According to Dow Jones, Murtaugh's comments contrast with repeated warnings from Chinese officials in recent months about the danger of massive over investment creating over capacity bubbles in industries including steel, cement and vehicle manufacturing.
China recorded a 21.4% on-year increase in car output to 372,000 units in October, the report added, noting that the increases in car production have been powered by break-neck expansion by domestic car makers and their foreign joint venture partners over the past year, including GM, which recently decided to expand manufacturing capacity at its Shanghai manufacturing facility by 50% to build luxury Cadillac models.
Murtaugh suggested to Dow Jones that the recent flurry of announcements of multimillion-dollar expansion plans by foreign companies, including Volkswagen and Nissan Motor had unreasonably fanned official concerns of overcapacity.
Overcapacity in China's car manufacturing industry is concentrated in a slew of uncompetitive domestic companies, while foreign firms like GM are expanding to keep pace with soaring local demand, the report said.
China recorded a 30.7% year on year rise in car sales in October, official statistics issued on Monday indicate, Dow Jones said, noting that GM's China car sales reached 267,395 units in the first nine months of 2003, outpacing the 264,371 units sold in full-year 2002.
"There has been a structural unutilised capacity in China's car industry for as long as the industry has been around," Murtaugh told Dow Jones, adding: "There are 120 auto companies (in China) and basically only 15 of them sell over 90% of the vehicles (produced)...(while) 100 of these manufacturers have capacity that they don't use and never will use."
Dow Jones said GM plans to use a pending car-financing joint venture with SAIC to boost its China sales further - such joint ventures are possible due to the China Banking Regulatory Commission's issuance last month of long-delayed regulations for car financing, a hard-won condition of China's entry to the World Trade Organisation in December 2001.
Murtaugh reportedly echoed comments issued last month by Volkswagen Financial Services AG of the "restrictive" nature of those regulations by pointing out that the new rules don't permit car finance companies to set up regional branch offices so the GM/SAIC joint venture will instead operate from its Shanghai headquarters using field agents throughout China.
"China's financing regulations are not as flexible as (those in) North America or European (countries)... but it doesn't impact our ability to do nationwide business," Murtaugh told Dow Jones.
He also reportedly said China's policy-makers have apparently adjusted the more unpopular aspects of a draft official auto policy - controversial provisions included a requirement that automakers set up separate distribution outlets for imported and domestically produced vehicles.
"We've not seen the latest draft, but from discussions with policy insiders it appears they've included an awful lot of the comments they've received (from foreign automakers) in the final version," Murtaugh told Dow Jones, without elaborating.