Reuters reports that consultants KPMG have warned that the booming Chinese car market will face major overcapacity problems within two years. The Chinese auto industry is currently seeing a huge wave of investment in vehicle production capacity and in its components industry. However, the warning suggests that future profits may not be as high as investors hope due to problems of oversupply.

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“Overcapacity will be a major factor within two years, with the passenger car market – already the single most important sector within the Chinese vehicle market – likely to be at the forefront,” said Paul Brough, managing partner of KPMG’s Financial Advisory Services practice, in remarks reported by Reuters.

In a presentation to a conference, he noted that annual vehicle sales in China had grown to 3.3 million units from 1.4 million over the last eight years and that KPMG expected future sales to grow at an annual rate of eight percent between now and 2015.

While car sales rose 77 percent from January to July this year to 998,000 units, capacity within the Chinese car market is expected to hit 2.7 million units this year, of which 45 percent would be from plants based on foreign investment, said KPMG.

It said it expected that between ten and fifteen million Chinese households would be able to afford a car by 2010, and that the government had opened up the car financing market.

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But the changes would not be sufficient for demand to catch up with supply, the consultancy said.

“In fact, even with car sales forecast to hit 1.8 million in 2003, there is potential overcapacity in the market of nearly one million units, or 50 percent of forecast sales,” said KPMG.

That overcapacity is expected to rise to 2.3 million units by 2005, or “a staggering” 90 percent of forecast sales, it added.