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back to index backCHINAtalk February,  2005

KPMG study finds most auto executives view China with rose-colored glasses

A new KPMG global survey found that auto industry executives worldwide are viewing the Chinese market through rose colored glasses, the South China Morning Post reports.

The paper said fully 37% of the 120 executives KPMG contacted thought there was no over-capacity in China, and another 49% said if there was overcapacity, it amounted to less than 30% of the market.

KPMG said the executives appeared to be out of touch with the views not only of industry analysts of Chinese government officials who are now saying openly that the two year period of high-speed growth that took the passenger car market from 600,000 to 2 million a year in 2002-03, was an aberration.

No More Blowouts: Xu Changming, an economic official at the State Information Center in Beijing told reporters last week that there will never be a repeat of the blowout” growth of those years.

The government expects auto sales to rise 17% this year, or not much faster than last year's 15%, he said, adding that the State Development Research Center expects a continuing decline in production and falling prices at least through the first half of 2005.

Overcapacity for a Decade: The Hong Kong paper said KPMG managing director Paul Brough told it that even if sales continue to grow moderately, over-capacity will remain a major issue for the next decade. Even with predicted sales of 3.1 million units in 2007, that would still mean that less than 60% of capacity would be utilized.” Just so, the paper said, Merrill Lynch recently estimated that the Chinese auto industry ran at about 72% of capacity last year, vs. 95% in 2003—and it predicted that the rate will fall to 61% this year and 54% in 2006. The Post said KPMG's director of financial advisory services, Thomas Stanley, told it that the industry's lack of depth-perception about the Chinese situation stems from the difficulty of keeping track of expansion projects in China, not to mention the industry's self-centered outlook.

‘Somebody Else's Problem:' A lot of executives think it is somebody else's problem... most companies are confident they will succeed in the marketplace,” he remarked.

What is worse for the Chinese, he added, is that other countries are also burdened with excess capacity, so it will not be easy for the Chinese industry to keep its factories busy with exports.

The most likely result of all that, the KPMG executives told the SCMP, is a wave of mergers and acquisitions, not to mention bankruptcies, over the next several years.

Source: Philip S. Pace, The Japan Automotive Digest - for a free sample issue click here. - GAI

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