BRIEFING: China auto industry review, 2004 edition

After an explosive couple of years, China’s car market hit the buffers in 2004. Despite the slowdown in sales, there has been no let-up in the pace of investment in the market, with all the leading automakers jostling for position in the market. Carmakers are talking big numbers – altogether, foreign automakers are spending US$13bn to triple annual capacity to 6m units by the end of the decade. But this has raised new fears that overcapacity, the bugbear of the auto industry in its developed markets, could hit China as well. Overcapacity would lead to a hotting-up of the price war that is already raging in China, analysts fear: "The price wars are set to rage for at least the next two to three years. Nobody is going to be immune," said Lin Wenjun, auto analyst at Capital International Holdings in Shanghai. Haitong Securities analyst Gu Qing said: "The market is becoming saturated. We are just not going to return to the heady days of growth." And JP Morgan analyst Frank Li added: “China's auto market will face increasing oversupply in the next two years." JP Morgan estimates oversupply in China to reach 11% this year and 23% in 2005.