China's automobile manufacturers are facing fierce price competition and big profit reductions.

Domestic car sales have increased in number but they are less profitable. Insiders say this is an inevitable process as the industry matures.

In the past five months, China's car sales profits have dropped by 5 percent compared with the same period last year. Qie Xiaogang, who works in the auto industry, explains why auto producers are losing out from production growth.

"In the past few years, the Chinese auto industry has made conditions easier for car producers, and been concentrating on research and development into new technologies. This has caused fierce competition, and diminished profits for the industry as a whole."  Qie said.

Qie Xiaogang adds that the price war has been fueled by the rising prices of raw materials such as steel and hikes in labor prices. These have increased sales cost and are eating away profits.

Statistics show that auto manufacturers in developed countries only make a profit of 1 to 3 percent of the production cost. In china for the last few years it has been much higher due to cheap production cost.

So Qie Xiaogang says this drop in China sales profit means China's auto industry has gradually met the standards of developed economies. It's an unavoidable process.

(CRI.com July 13, 2005)