Chinese authorities are drafting a new policy toward the development the country's automotive industry. The new policy is expected to give an impetus to further restructuring of the booming industry.

Rich profits in the automobile business have resulted in a big number of manufacturers in China. However, they are much smaller than their foreign counterparts. Chinese auto manufacturers bear enormous risks by turning out products of a low technological level and with a poor capacity.

As competition grows in the Chinese market, some auto manufacturers are doomed to go bankrupt.

A possible result of it will be increasing non-performing loans in banks and unemployment of workers, said an official from the State Development and Reform Commission Sunday.

The commission, which oversees China's overall economic restructuring, has paid great attention to the issue and is to formulate a new policy to curb construction of redundant auto projects for the healthy development of the automotive industry, said the official.

Under the new industrial policy, expected to be issued soon, the government will discourage car production by assembling imported parts and components, and cars thus produced in the country will be taxed as imported products.

The new policy is aimed at raising the standards for new automobile factories, lifting the level of research and development and service of existing factories, examining the origin of new products, and encouraging technological progress, energy economy and sustainable development.

The government will also encourage the development of automobile-related industries, including metal melting, chemical, machine building, electronic and textile industries. The government will encourage relevant enterprises in these industries to increase their scale and update technology so as to compete in the international market.

Some 23 provinces, autonomous regions and municipalities in China are now producing cars as hundreds of billions of yuan were invested in the automobile industry over the past few years.

However, only two of the 123 Chinese auto manufacturers produce more than 500,000 units a year, with eight others each with an output of over 100,000. There are 95 factories each with an annual output less than 10,000, including 70 each producing less than 1, 000 automobiles every year.

The official said that in order to guide investment in this industry, the government will encourage factories to produce energy-saving cars, raise safety standards and reduce waste discharge by implementing stricter technological standards.

The commission predicted that the profits of Chinese carmakers would plunge as imported products increase after 2005, when China abolishes the requirement for import licenses and quotas and reduces the import tariff to 25 percent.

(China Daily August 18, 2003)