China said on March 22 it wanted to boost its auto industry by reducing the number of companies in the sector through mergers and promoting two or three carmakers to become the dominant players. The government's plans for auto industry reform were unveiled two months after it approved stimulus measures including tax cuts and subsidies to help carmakers survive the global economic downturn.

The State Council, or cabinet, said on Feb. 20 that by 2011, it wanted to cut the number of major domestic automakers, who are responsible for 90% of domestic sales and output, from 14 to 10.

Under the scheme, two or three companies would be the industry heavyweights, capable of producing more than two million units a year, while four or five others would have annual output capacity of one million units.

It named four groups as possible nationwide leaders that should consider expansion through mergers and acquisitions -- FAW, Dongfeng Motor Corp, SAIC (Shanghai Automotive Industry Corp) and Chang'an Auto. SAIC, the nation's largest automaker, merged in late 2007 with rival Nanjing Auto, which owns the MG car brand.

But analysts say the government's plan may not bear much fruit in the short term, as the mergers process is a complicated one.  "It has been the central government's plan to consolidate the auto sector since 1994," said John Zeng, an expert at Global Insight. "But there are more and more players in the market... the structure is complex and it makes consolidation extremely difficult," he said, adding that local governments would be unwilling to surrender jobs in their jurisdictions.

Jia Xinguang, of the China National Automobile Industry Consulting and Developing Corp., agreed. "There are around 180 auto companies, including big and small," Jia said. "The ideal would be to have two or three automakers in China like other countries but it's still impossible at the moment because there are some joint ventures in China."

China wants to churn out 10 million vehicles in 2009, and has set a target of a 10% rise in annual output for 2009-2011.

According to the China Association of Automobile Manufacturers, production last year reached 9.34 million units, up 5.21% from 2007.

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