China Curbing Foreign Auto Investment

China trying to prevent possible financial crisis by slowing auto factory expansion.

BEIJING (AP) – China announced curbs Tuesday on surging investment in its auto industry, extending controls already imposed in other fields in an effort to cool off an economic boom that Beijing worries could ignite a financial crisis.

It was not clear how the controls would affect foreign automakers that are setting up factories in China, the world's third-largest auto market, where sales are growing at double-digit annual rates.

Communist authorities are trying to slow an investment boom in industries, including real estate, textiles, steel and auto manufacturing, that they worry could spark inflation or a debt crisis.

Under the new controls, automakers that want to expand their factories have to show that sales exceed 80 percent of last year's authorized output, according to the country's main planning agency, the National Development and Reform Commission (NDRC).

Auto sales are expected to grow by 22 percent this year to 7 million vehicles and expand by another 15 percent next year, the main association for Chinese automakers said last week.

But industrywide, production was only 71.5 percent of capacity last year, prompting fears of a glut, the NDRC said on its Web site. It said China has more than 100 companies producing cars.

All of the world's major automakers have Chinese factories, including General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Volkswagen AG, Toyota Motor Corp. and Nissan Motor Corp.

The latest controls appear to have a bigger possible impact on foreign investors than earlier measures, which targeted industries in which the main competitors are Chinese.

China's economy is expected to grow by 10.5 percent this year, driven by investment in factories and other fixed assets that the government says soared by 26.6 percent in the first 11 months of the year.

The government has raised interest rates twice this year, imposed curbs on construction and tightened standards for approval of industrial projects in an effort to contain investment.

In August, the government ordered an urgent review of the auto, steel, textile and other industries to stop unauthorized projects and slow down investment.

A government economic blueprint for 2007 announced this month says controls on land use and other economic affairs will be kept in place to contain the investment surge.