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BEIJING: China announced curbs on 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 per cent of last year’s authorised output, according to the country’s main planning agency, the National Reform and Development Commission.

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

But industrywide, production was only 71.5 per cent of capacity last year, prompting fears of a glut, the NDRC said on its website.

It said China has more than 100 companies producing cars. “Structural surplus is the basic characteristic of the current auto industry’s production surplus, and is the major existing problem for the development of the current auto industry,” the agency said.

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 per cent this year, driven by investment in factories and other fixed assets that the government says soared by 26.6 per cent 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.

But the NDRC chairman, Ma Kai, was quoted this month by state media as saying the “relentless expansion has yet to be stopped.”

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.
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