The push by domestic and foreign carmakers to build new factories and sales volume in China will lead to overcapacity in years to come, according to the country's top industry planner.

Chen Bin, of the National Development and Reform Commission (NDRC), said that many vehicle producers, encouraged by the ongoing rapid growth in the domestic vehicle market, are adding investment to expand production.

But he added: ""This is a symptom of overcapacity. With the effect of the government's incentive policies diminishing and mounting environmental pressures, the pace of domestic market growth is likely to slow and new production capacity will be idle in coming years."

According to NDRC projections, less than 70% of nationwide vehicle production capacity will be in use by 2013 if controlling measures are not taken. Overall vehicle production capacity in China will exceed 16m units next year, according to market data.

Domestically made vehicle sales jumped by 29% year-on-year to 8.33m units in the first eight months of 2009, making the country the world's biggest vehicle market, according to the China Association of Automobile Manufacturers.

Total sales this year are predicted to hit 12m units, up from 9.38m units in 2008.

Due to robust market growth, nearly 80% of vehicle production capacity in China is utilised this year, Chen said. In January, China cut the sales tax on vehicles with engine capacity less than 1.6 litres to 5% from 10% to stimulate demand. The central government also plans to make available CNY5bn (US$732m) this year for vehicle subsidies in rural areas.

Volkswagen announced last week that it plans to spend EUR4bn (US$5.9bn) to expand capacity at its plants in Nanjing and Chengdu to 300,000 units and 350,000 units a year respectively.

Last month, General Motors and China's FAW Group formed a 50-50 joint venture with a total investment of CNY2bn (US$29m) to make light-duty trucks. The venture will have a production capacity of 200,000 units a year.

In July Fiat Auto created a joint venture in Changsha with Guangzhou Automobile Group to make passenger cars in 2011 with an initial production capacity of 140,000 units a year.

Chen warned that carmakers should be "sober-minded" and not blindly expand production capacity for conventional vehicles. "What they should do is put more investment in R&D and production of energy-saving, environmentally friendly and new-energy vehicles."

He added that the government is also encouraging consolidations, mergers and acquisitions between domestic automakers to complement product lines.

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