The main Chinese partner of Toyota Motor reportedly posted a fall of 79% in second-quarter net profit on Tuesday, hit by sliding car prices and higher raw material costs.

According to Reuters, Tianjin FAW Xiali Automobile, which makes Toyota’s Vios sedan, said gross profit for the first nine months of 2004 would drop more than 50%, underscoring how Beijing’s efforts to rein in breakaway economic growth are hurting the country’s car market.

Xiali, which also makes other cars, is a unit of state-owned First Automotive Works, China’s largest maker of cars, buses and trucks, the report noted, adding that the two have stakes with Toyota in the joint venture to make Toyota cars.

“The main reasons for the profit fall were fierce market competition, rising raw materials prices and the appreciation of the Japanese yen,” Xiali reportedly said on the Shenzhen stock exchange’s website.

Net profit for the three months ended June 30 fell to $US7.46 million, from $36 million in the same period last year, based on Reuters calculations from previous figures. The fall came despite a 22% rise in second quarter turnover to $192 million.

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The news agency noted that car sales in China rose 1.6% in July from June to end a three-month decline. Growth is expected to slow to 10 to 20% this year after nearly doubling to 2 million units in 2003, as Beijing clamps down on credit to parts of the economy in danger of overheating on the back of alarmingly high investment.

That has helped prompt price wars in China, where multinationals are pumping in some $13 billion to bump up production to about 6 million cars a year by the end of the decade, sparking fears of a glut, the report added.

A reduction of its stake in the joint venture with Toyota to 33.12% from 50% also slashed earnings, Xiali said. “Reductions in our company’s costs were unable to offset the slide in sale prices of our products.”

First-half net profit also dropped 79% on the year to $9 million despite a 16.3% rise in turnover to $374 million, it said.

Tianjin Xiali sold 59,302 cars in the first half of this year, up 6.11% from the year-earlier period, with output rising 6.63% to 68,865 units, it said, according to Reuters.

The news agency noted that First Automotive Works also operates a venture with Volkswagen in the northeastern city of Changchun.