China's auto industry booms amid challenges

China's automobile industry is booming on the back of strong domestic demand, but challenges remain due to a spate of governmental and environmental factors, experts warned.

At the ongoing Boao Forum for Asia, held this year from April 8 to April 11 in south China's Hainan Province, industry insiders said that solid market growth might mask a host of problems in the country's auto industry.[Special coverage]

Big demand in China has powered the past decade of explosive growth in car sales, but the industry is grappling with a thicket of problems, including environmental woes, traffic congestion, government restrictions on car purchases and odd-even car bans, said Zhu Fushou, General Manager of Dongfeng Motor Corporation.

"It is debatable whether the sector could sustain growth in the midst of these factors," Zhu said.

BOOMING MARKET

China's car market has been credited with helping boost the world's car sales thanks to huge domestic demand.

According to official data, car sales in China surged by 13.9 percent in 2013, reaching 21.98 million units, giving the automobile industry a much-needed boost after two years of slow growth. The headline rate also helped China secure the world's top spot in car sales for the fifth consecutive year since 2009.

Xu Heyi, General Manager of Beijing Automotive Group Co., Ltd., said that China's auto industry is still in the initial stages of development from an international market perspective.

"The domestic market will not peak until its annual sales and capacity reach between 30 million to 35 million units, respectively," Xu said.

Last year's performance has fueled high expectations, and a slew of major car manufacturers have set ambitious targets hoping to reach a double-digit growth rate. Changan Mazda Automobile Company, Ltd., for instance, expects to sell 100,000 units in China in 2014, which would be a 40 percent increase from last year.

China's auto sales could witness growth of eight to ten percentage points this year, particularly the sales of sports utility vehicles (SUVs)and multi-purpose vehicles (MPVs), according to a forecast by the China Association of Automobile Manufacturers.

STUMBLING BLOCKS

Despite great expectations, experts are fretting over hurdles that might hold back China's auto sales, including government restrictions, environmental pollution, and the energy crisis.

A number of major Chinese cities have taken measures to restrict car ownership and usage out of concern for environment and traffic congestion.

In February, the government of the southern metropolis of Guangzhou announced a traffic control plan that requires half of all government cars to be off the road when there is a red alert for air pollution, while the remaining government vehicles should follow alternating odd- and even-numbered license plate restrictions.

Other places in the country, including Beijing and north China's Shanxi and Hebei provinces, have already introduced odd-even license plate road restrictions on heavily polluted days.

In March, east China's Hangzhou City, which has been frequently hit by acrid smog, announced a restriction on the issuance of new car licenses, making it the sixth Chinese city to clamp down on car ownership in a bid to ease traffic congestion and combat air pollution.

In addition, China is still heavily reliant on the import of crude oil, meaning that oil supply will still be a challenge in the future, according to experts at an international oil trade conference held in Shanghai in November last year.

Xu Heyi said that these problems have taken a toll on the car industry and contributed to growing overcapacity.

Experts said that while the market should play an important role in tackling overcapacity, car manufacturers will have to dig into other car-related fields like auto finance, new energy cars, and niche market models, such as SUVs and MPVs.

Zhu Fushou said that new energy vehicles are a field worthy of attention, as cities such as Beijing, Shanghai, Shenzhen, and Tianjin have either implemented or are considering favorable policies to promote purchases and production of new energy cars.

China's central government has also provided hefty subsidies since 2010to drive sales of new energy cars and has initiated a pilot program to promote the cars in 40 cities and regions.

"Carmakers should pay attention to these areas if they want to outdo each other in the market this year," Zhu said.