Competition heats up in China

The Chinese auto market is growing, as the country develops from an export-driven economy towards a domestic-demand driven economy. But with a host of Chinese auto makers competing with foreign companies eager for a piece of the world's third-largest market, price competition is intense and profit margins are slender.
Analysts forecast sales growth of between 10 and 20 percent in 2006, driven by China's strong economy and more first-time buyers.

New government policy favoring small cars to slow the growth of oil consumption and reduce traffic congestion should strengthen the hand of China's domestic automakers, including Geely Auto Holdings, who target cheap, small cars at a price point the foreign automakers are unable or unwilling to meet.

As Chinese automakers' capacity grows, companies like Geely are preparing to enter export markets, where their low-cost offerings should leave room for healthy profit margins.

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