China became the world’s largest car market in 2009 when its sales surpassed US sales figures. There was a 46 percent surge in demand in 2009 as compared to 25-30 percent increase this year. At the same time, sales still remains untapped from rural China and the potential is huge. Nearly every auto maker has thus stepped up its production in the country to meet the escalating demand and in fact, foreign automakers do not have capacity to build all the cars that they need to sell in the Chinese market.
Volkswagen announced that it will open its 13th production facility in China by 2013 and Peugeot Citroen has plans to increase its production capacity to 750,000 units from current 450,000 units in association with Chinese auto maker Dongfeng. Peugeot is also setting up its second joint venture plant with Chinese automaker Chang'an in Shenzhen. Apart from this Nissan, Toyota, BMW, Hyundai and Chinese auto maker FAW are all on expansion spree in the market.
In spite of such a robust demand, a risk now lies in over-production. Chinese regional government projected demand is half of the capacity that is expected to be operational in the China by 2015. National Development and Reform Commission is responsible for Chinese economic planning strategy and it has already raised concerns that if automakers continue to increase their production at current pace, then there will be over production in next few years. "Serious overproduction capacity will lead to negative market competitiveness, a loss in enterprise efficiency, factory stoppages and other problems," Chen Bin, a leading commission official, told the National Business Daily while warning of "blind investment" in the sector.
