Source from Fitch Ratings said that it expects the rapidly developing Chinese automotive sector to return to a more normalised level of healthy growth in 2006 and beyond, with an expectation of increasing consolidation in the sector as it continues to evolve.

While the 34% to 35% growth rates of 2002 and 2003 will likely not be repeated, the agency expects that the industry will be able to support annual double-digit growth over the next five years.

The agency views the outlook for the Chinese auto market as positive, based on the vibrant Chinese economy, increasing affordability and low penetration of vehicles per capita.

Fitch expects consumer demand in the Chinese auto market to continue to rise over the medium term, with overall vehicle sales set to reach 6.7 million in 2006, up 17% yoy, and sedan sales expected to increase by 25% to 3.5 million in 2006.

Today, China is the third largest auto market in the world with annual vehicle sales of more than 5.7 million.

"Such unprecedented growth has been driven by the continuously rising purchasing power of Chinese consumers, which has attracted huge investment from indigenous automakers and leading foreign manufacturers, largely via the formation of joint ventures," said Matthew Kong, associate director in Fitch's Asia-Pacific corporates team.

Although foreign brands still dominate the market, Chinese companies are gaining share in the domestic market and are beginning to export their products overseas.

Fitch also observes that the indigenous Chinese automakers' lack of core R&D capabilities leaves the industry dependent on foreign technological input.

The overcapacity issue, which may be exacerbated by the expansion strategies of the large foreign manufacturers, is expected to lead to a polarisation in the sector. Fitch expects this to occur as a result of increasing consolidation, which will likely be centered on several leading Chinese auto groups, given the continuing restriction on majority foreign ownership.

By People's Daily Online