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Last Updated: Monday, 7 June, 2004, 05:20 GMT 06:20 UK
Carmaker GM raises China stakes
GM car
GM sold 178,000 cars in China between January and April
Car giant General Motors has unveiled plans for a massive investment boost in China, in a major vote of confidence for the Chinese economy.

GM said it would spend $3bn in an effort to double its capacity in China over the next three years.

The move comes despite fears that China's fast-growing economy could face an abrupt slowdown in the months ahead.

Phil Murtaugh, head of GM's China unit, said the firm remained "highly confident" in the Chinese car market.

"With the world's fastest-growing vehicle market, success in China is crucial to GM's global success," he said.

"These investments will enable us to maintain our leadership position by growing with the market."

Boom time

GM has previously said China is on course to overtake the UK and Canada as its second biggest market after the US this year.

The $3bn (1.68bn) cash injection will be spread across GM's Chinese operations in an effort to raise annual production capacity to 1.3 million vehicles, roughly double its current level.

The company also plans to introduce about 20 new or upgraded models in China over the next three years, most of them locally-made.

Not all analysts cheered the deal, however.

Krsh Bhaskar, of the Motor Industry Research Unit, told the BBC's World Business Report that China partnerships have a tendency not to last in the long term.

"I expect that some, or all, of the relationships between a Western and a Chinese partner will come unstuck, and the Chinese will go it alone," he said.

Rapid growth

Nonetheless, China's booming economy and fast-rising average income levels have fuelled bumper car sales in recent years, encouraging foreign car makers to beef up their operations in the country.

GM's own Chinese car sales rose to 178,000 in the first four months of 2004, a 56% increase on the same period last year.

But the Chinese government has warned that the local car industry may have over-expanded, with capacity set to reach 14 million vehicles a year against demand of just 7 million by 2007.

Analysts have also raised concerns that China's booming economy - which grew at a rate of nearly 10% in the first quarter - may overheat, triggering a potentially devastating crash.

Earlier this year, Beijing said it planned to rein in growth to more sustainable levels by imposing tougher checks on borrowing to fund investment projects.

Krish Bhaskar, Motor Industry Research Unit
"By 2050, China is going to be the the biggest bloc in the car market"

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