China will soon take measures to cool down its overheating automotive industry, despite continuing rapid growth in domestic vehicle demand.

The measures, to "make investment rational and prevent redundant construction in the auto industry," will be included in a new government policy, said sources from the National Development and Reform Commission (NDRC), the industry's main watchdog.

The long-awaited policy will be launched in the near future, sources said.

Tens of billions of US dollars have been invested in vehicle production in China by foreign auto giants, and domestic State and privately-owned companies in recent years, spurred by fast-growing vehicle demand.

"However, the demand will fluctuate as a result of energy supply, environment and transportation problems in China, and blind investment will generate excessive vehicle production capacity. So the government must take measures," said an NDRC official.

The government will control the vehicle assembly capacity of domestic companies through imported CKD (completely knocked down) components, according to a draft new auto policy.

The CKD component imports will be treated as vehicle imports.

The government also wants to increase technology and development capability requirements of some automakers.

Total annual vehicle production capacity will reach 10 million units by 2005, according to the China National Automotive Industry Consulting and Development Corp.

Sales of vehicles made in China totalled 2,373,800 units during the first seven months of this year, an increase of 30.97 per cent from a year earlier, according to statistics from the China Association of Automobile Manufacturers.

Domestically produced passenger car sales grew by 77.13 per cent year-on-year to 998,900 units during the period.

Official statistics indicate there are more than 120 vehicle plants in China, among which only two have an annual output of more than 500,000 units, eight more than 100,000 units, and 95 less than 10,000 units.

"Many automakers in China will be phased out as a result of overheating investment and mounting vehicle imports now that China is a member of the World Trade Organization (WTO),'' said Jia Xinguang, chief analyst with the consulting company.

Under its WTO obligations, China will remove quota and permit barriers on vehicle imports by 2005 and will cut tariffs to 25 per cent by the middle of 2006.

"What the government should do is to control investment of State-owned automakers, especially the top three, and to guide more investment in the nation's auto components sector to build a strong buttress for the auto industry,'' Jia told China Daily yesterday.

The top three -- First Automotive Works Corp, Dongfeng Motor Corp and Shanghai Automotive Industry Corp which each have teamed up with two or more foreign automakers -- will control half of the total vehicle production capacity in China in coming years.

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