China Trading Center for Automobile Imports Deputy Manager Ding Hongxiang said a shortfall in the number of import licences being offered to dealers could be the biggest factor.

"Dealers had better not blindly place orders for foreign-made vehicles," Ding said.

"Otherwise, those who can not get enough licences will be in trouble."

Many dealers hoping to cash in on imported cars ordered too many vehicles during the first half of the year, but could not get enough licences, resulting in a stockpile of cars in bonded areas across China.

According to Ding, there are more than 25,000 foreign-made vehicles standing idle in domestic bonded areas.

"We originally believed it would be a highly profitable business to trade imported vehicles and ordered a lot from foreign carmakers in March and April," said a dealer in the Tianjin bonded area, the new home of about 12,000 idle cars. "But now we can not do anything as we can't get enough licences."

Ding said government controls on the imports of vehicles would continue during the second half of the year, although they were expected to have "proper growth" compared to last year.

Jia Xinguang, an analyst from the China National Automotive Industry Consulting and Development Corp, said it was clear that the government was using licence distribution as a non-tariff measure to control import volumes in a bid to assist domestic manufacturers.

"The current licence distribution system lacks transparency and has generated many irregularities," Jia said yesterday.

According to traders, charges on an import licence have exceeded 100,000 yuan (US$12,100) because of the short supply.

Jia, who earlier predicted China's vehicle imports this year would at least double from last year's 72,000 units, said yesterday: "From the current conditions, the import volume will be 100,000 plus units this year."

China imported 51,890 vehicles during the first half of the year, an increase of 33.6 per cent compared to the same period in 2001.

Ding suggested dealers should concentrate more on domestically made vehicles to alleviate risks.

"The domestically made vehicle market is keeping a strong development momentum going," Ding said, adding that the imports had had little impact on local manufacturers so far.

During the first seven months of the year, sales of domestically made vehicles increased by 31.2 per cent year-on-year to 1.8 million units, according to statistics from the China Association of Automobile Manufacturers.

"They will be able to reduce risks from the overlapping between home-made and imported models on the market by dealing in more home-made vehicles," Ding said.

Spurred on by the government's import-control policy, foreign carmakers are bringing more new models to their Chinese joint ventures.

Dealers appear to recognize the risks associated with trading imported vehicles.

An official from Taikoo Motors, a Hong Kong-based car dealer, said the company was "looking for proper domestically made models, although the majority of businesses still depends on imported vehicles."

Ding said strong fluctuations in the exchange rates of foreign currencies was another risk being faced by importers.

The fluctuations, especially of the euro and Japanese yen against US dollars, have caused huge changes in the prices of imported vehicles on the domestic market.

"There will be many uncertainties in the fluctuations of exchange rates during the second half of this year," Ding said.

(China Daily August 19, 2002)