Central Planners Put the Brakes on China's Car Makers

China's economic planners, warning car makers that capacity is outstripping demand, have laid down guidelines to limit further expansion — a move that may pit them against local governments and aspiring Chinese entrepreneurs.

While warp-speed increases in passenger-car sales have made China the world's number-two vehicle market, Chinese car companies — including crossovers from other industries racing to cash in — are adding assembly lines even faster. Seeking to "foster the creation of fewer, bigger Chinese car companies able to compete in global markets," China's economic overlords are stepping on the brakes.

As the Wall Street Journal reports [subscription required]:

Under the new guidelines, a company must sell cars and trucks equal to 80% of its government-approved production capacity before it can seek permission to construct a new plant away from its home base. Auto makers that don't have an approved capacity must be making at least 100,000 cars or 50,000 sport-utility vehicles a year if they want to expand.

Planners also cited environmental and safety concerns:

Government officials are also increasingly worried about the environmental and social costs of China's rapid shift to car driving, which has helped shroud cities in air pollution, snarled traffic, and contributed to a surge in roadway-accident deaths.

One call-to-action — the central planners' emphasis on developing, promoting, and buying exclusively Chinese brands — could leave another core constituency miffed: multinationals like GM and Volkswagen, which have helped fuel Chinese economic expansion through joint ventures with Chinese companies, only to see local brands grab back 26 percent of the Chinese domestic market.

[Source: The Wall Street Journal]