Zhang Yi: Who will adjust the excess capacity?

Chen Bin, director of the Industry Coordination Department of the National Development and Reform Commission, pointed out at the Tianjin International Forum for China's Automobile Industry Development a few days ago that under the impetus of local governments, the rapid expansion of domestic auto companies has exacerbated the risk of overcapacity and must take measures to resolutely curb it.

Chen Bin’s point of view is that there are supporters and there are plenty of opponents. Some people believe that even if there is excess production capacity, adjusting excess capacity will depend on the market rather than the government.

However, the promoters of this round of “car construction” are local governments and they are not market activities at all. For the local government to be crazy about automakers, only the central government has the ability to suppress and regulate.

At present, domestic automobile production capacity can basically meet market demand. However, the capacity of vehicles currently under construction and planning will reach more than 30 million by 2015. According to forecasts, the demand for domestic cars in 2015 will exceed 20 million.

China is a country with a large population, relatively short energy and land resources. It is impossible for China to be almost like a car per capita like the United States, so that the oil supply in the world cannot be afforded, and there are not so many places in China for parking.

Experts from Tsinghua University believe that the limit of cars that can be carried on land in China is 150 million vehicles. Some people think that this goal is somewhat conservative and should be able to carry 200 million cars.

As of the end of 2009, China’s vehicle ownership was 62 million vehicles (excluding agricultural vehicles), and it is estimated that it will reach 75 million by the end of this year. According to the forecast of the Ministry of Industry and Information Technology, by 2020, the number of cars in China could reach 200 million. Then more than 100 million cars will be added in the next decade.

In the past five years (including 2010), China has added 35 million new automobiles. Since China's cars are relatively young, the number of scrapped each year is not much, about 3 million vehicles. According to this trend, 3 million scrapped cars will be deducted every year for the next ten years, and an average of 17 million new cars will be added every year.

Some experts believe that China's automobile production and sales volume may reach the high point of 20 million annual sales in the next two or three years, and then it will fall back to a level of 16 million to 17 million vehicles per year.

There are less than 20 million domestic sales and exports each year, and the production capacity exceeds 30 million. This is not called overcapacity.

Resolutely restraining the overcapacity of vehicles is also a frenzied deterrent to the local government.

Since last year, under the impetus of local governments, there has been a new wave of crazy "motor-building campaigns" in China. Some local governments have not hesitated to provide land for free, provide loans, and even provide various kinds of fiscal and taxation support in order to pull up automobile projects.

Auto companies are very cautious in expanding production capacity. Consider the future market demand, where the investment comes from, and what the return on investment will be. However, some local governments blindly give enterprises indicators, set tasks, lead the company's development plans, and force auto companies to expand production capacity, which is a serious distortion of the market.

To curb the excess capacity of autos led by local governments, administrative orders must be used to achieve their goals. Firstly, the strict examination and approval of auto projects is strictly prohibited for auto projects that have no market prospect, no advanced technology and new models. The second is to resolutely prevent local governments from providing free land and fiscal tax incentives to encourage the construction of automobiles. Once discovered, they are firmly investigated and dealt with. The third is to strictly examine and strictly control the expansion of production capacity of automobile enterprises and the establishment of branches in different locations.

Non-market behavior can only be dealt with by non-market means. Only through the central government's strong macro-control can we avoid the risk of serious overcapacity of the automobile and ensure the sustainable and healthy development of the Chinese automobile industry.