China will soon unveil a policy to give local car makers an edge over foreign companies, which could disrupt outsiders’ plans to grab a slice of the booming market, state media and analysts said on Monday, according to the Reuters news agency.

One of the policy’s key aims would be to ensure Chinese car makers control half the market by 2010, threatening the likes of Germany’s Volkswagen, they reportedly said.

Citing state newspapers, Reuters said the government is also likely to encourage consolidation – an idea first mooted years ago – in a fragmented sector populated by 120 manufacturers, some of whom make few or no vehicles.

Analysts told Reuters that Beijing – nervous about the enormous influx of foreign investment and a near-unbridled expansion in capacity that could cause a glut and hit vehicle makers’ profit margins down the road – was trying to protect its own.

“What they (government) worry about is most of the Chinese auto makers will disappear, as sooner or later they have to relax the foreign investment limit,” Lawrence Ang, an auto analyst with Deutsche Bank in Hong Kong, told Reuters.

Reuters noted that foreigners can now hold up to 50% of a vehicle joint venture in China, unless the plant produces solely for export, in which case the overseas partner can own a controlling stake.

But, Reuters added, Beijing is keen to get local vehicle makers to eventually develop their own vehicles without overseas help, and their inability to do so was the “Achilles heel” of the domestic car industry, according to the official China Daily.

Foreign car makers operating in China – where car sales grew 82% in the first half of 2003 – told the news agency it is too early to comment on the policy.

“This is a draft auto policy, and we’ve yet to see what will be the final outcome,” Kenneth Hsu, Ford ‘s spokesman, told Reuters, adding: “We have used some channels to indicate some of our ideas (to the government),” he added, declining to comment further.

Reuters noted that Ford [a relative newcomer to China] has a joint venture in the south-western city of Chongqing with Chinese minivan maker Chongqing Changan Auto Co Ltd.

Volkswagen, which commands about 35% of the car market, told Reuters it was upbeat on any future policies with spokesman Michael Wilkes saying: “We are confident that…the expected policy draft will regulate positively”.

Only a few local companies, including Geely Group and SAIC-Chery Automobile Co Ltd, build cars of their own design, Reuters noted, adding that most domestic players, including the nation’s top three car makers – First Automotive Works Corp, Dongfeng Motor Corp and Shanghai Automotive Industry Corp – make cars based on foreign partners’ models.

“The aim of the auto policy is to suit the new development conditions of the sector following the country’s entry into the World Trade Organisation,” official news agency Xinhua quoted an official with the State Development and Reform Commission as saying, Reuters reported.