Hunan Jiangnan Auto, a military-backed car manufacturer, said it was investing RMB 2.88 billion in a factory that would turn out 260,000 cars a year from 2008 despite a soon-to-be-issued government policy that warns China is facing the threat of chronic overcapacity.
The policy says that RMB 200 billion to be invested over the next five years will take production up to 12 million vehicles by 2007, when domestic demand will be about seven million.
Vehicle output in 2003 will be 4.3 million, against a production capacity of 5.5 million ï¿½ a 35% rise over 2002. Passenger car output rose 84%.
The policy notes the rush to build factories across the country with loans sourced from local banks and agreements made with foreign car companies. If all this new production comes on stream, it could lead to serious overcapacity, destructive price-cutting, idle plants, widespread lay-offs, wastage of resources and non-performing loans.