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The National Development and Reform Commission, China's top industry watchdog, yesterday announced measures to prevent the development of excessive production capacity in the country's auto industry.

If an automaker operating in China wants to build a new plant in another location, its sales in the previous year must account for more than 80 percent of its existing production capacity approved by the government, said the commission.

It said evidence was emerging of excessive auto production capacity in China and added that the situation is likely to worsen. While the industry has a current annual production capacity of 8 million vehicles, new facilities capable of producing a further 2.2 million vehicles a year are under construction.

The commission warned that China's total auto production capacity will exceed market demand if automakers proceed with their plans to construct new production facilities in the years up to 2010. Sales of domestically made vehicles are widely expected to exceed 7 million units this year and reach 10 million in 2010. This is up from 5.7 million units last year.

The commission urged local governments to speed up trans-regional consolidations between automakers to create "big and internationally competitive" groups. China's auto sector, although ranking No 2 in the world in terms of production volume, has more than 100 vehicle manufacturers.

Last year the three biggest First Automotive Works Corp, Shanghai Automotive Industry Corp and Dongfeng Motor Corp controlled 46.1 percent of the nation's total vehicle output. This was down from 49.3 percent in 2003.

The regulator urged local governments to support the development of domestic automakers with their own brands without indicating what measures should be taken. It said the government would launch specific policies to aid the development of fuel-efficient and environmentally friendly vehicles especially those from home-grown brands.

The commission also said government departments at all levels should buy such vehicles or new-energy automobiles, especially those from Chinese brands, in order to "set an example to ordinary customers."

(China Daily December 27, 2006)