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Fearing economic boom may fuel debt crisis, the government tries to slow investment in its firms.

Joe McDonald / Associated Press

BEIJING -- 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 in China, the world's third-largest auto market.

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

Under the new controls, automakers seeking to expand their factories must 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.

Auto sales are expected to grow 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 71.5 percent of capacity last year, the NDRC said on its Web site.

"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," it said.

Of China's hundred or so carmakers, about a dozen are emerging as manufacturers with the potential to be global players. In an effort to modernize the industry, the Chinese government allows foreign automakers to produce vehicles locally only in ventures with domestic manufacturers.

The world's major automakers, including General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Volkswagen AG, Toyota Motor Corp. and Nissan Motor Corp., produce vehicles in China with local partners.

Through its successful partnership with SAIC Motor, China's largest carmaker, GM is the second-largest player in China's fast-growing passenger car market. China is GM's second-largest market after the United States.

The latest controls may have a bigger impact on foreign investors than earlier measures which targeted sectors in which the main competitors are Chinese.

China's economy is expected to grow 10.5 percent in 2006, driven by investment in factories and other fixed assets that is up 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 project approvals to slow investment.

In August, it 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."

heyitsme

It will be interesting when China starts entering the US where hyundai left off. Hopefully marketing here will make them cleaner in their homeland and put the less efficient companies out.