China's Car Market May Contract This Year, Official Warns

(Bloomberg) -- A Chinese government official has sounded the most direct warning yet about the nation’s slumping car industry.

China’s vehicle sales will come in under 30 million units this year and may even fall below the number in 2017, Wu Wei, a divisional director under China’s top economic planning body, said Wednesday. Companies shouldn’t expand production capacity blindly, and instead should focus more of their investments on research and product development, according to Wu.

A drop would mark the first full-year slide in China’s car sales in about two decades, coming on the heels of four straight months of declines as slower economic growth and a trade conflict with the U.S. hurt demand. Car sales in China totaled 28.9 million units last year, according to the China Association of Automobile Manufacturers.

“It’s not necessary to build production capacity blindly,” Wu said at the China International Import Expo in Shanghai. “The development of a manufacturing business doesn’t just depend on capital. Sustainable investment returns over the long term are key.”

Sales of new-energy vehicles are expected to surpass 1 million units this year and account for more than 3 percent of total car sales, said Wu, a director at the machinery equipment division under the Department of Industries at the National National Development and Reform Commission.

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