CHINA has called a moratorium on approving any new car assembly plants amid a potentially huge over-supply. The vice-minister of the State Economic and Trade Commission, Yu Xiaosong, said the central government would not encourage any more foreign plants. 'We have too many car assembling plants,' he said. 'We are probably ranking number one in the world.' Production capacity already far exceeds market demand for vehicles following a flood of new joint ventures. Most of the world's leading car-makers have joint ventures in China including: Cherokee, Volkswagen, Toyota, Nissan, Fiat, Volkswagen, Citroen, Peugeot, Isuzu, Suzuki and Ford. General Motors and Mercedes-Benz are the latest firms to make the commitment. These firms either have a direct investment in car assembling plants or shares in such companies. 'I think new car assembling plants would find difficulties making any profit,' he said. Mr Yu said China still needed further foreign funds to help the country upgrade existing car factories. While the mainland market for cars is seen as having immense potential, it has been in the doldrums since the launch of China's economic austerity programme three-and-a-half years ago. Most Sino-foreign joint ventures have consequently failed to reach full capacity. Denway Investment, the Hong Kong-listed company operating the Sino-French car plant Guangzhou Peugeot, has been suffering continuous losses. It lost $75.76 million in the six months to June 30 this year. Recently, it was rumoured Germany's Volkswagen had withdrawn from its joint venture with China First Automobile in Changchun because of lost sales and a gloomy outlook. This was later denied, but parties involved admitted the deal was having problems. Shanghai Automobile Industry Group recently revealed it had 15,000 unsold Santana cars in stock. At some other car factories the situation is said to be even worse. Nanjing Yue Jin Automotive has a joint venture with Italy's Fiat to assemble Iveco light buses. The design capacity of the assembling line was 60,000 annually, but the plant has only rolled out 15,000 to 16,000 vans this year due to lacklustre demand. Last year, China produced 1.5 million vehicles, up 10 per cent from 1994. It is expected to produce 2.7 million in 2000, industry statistics said. China's vehicle output in the first half was 758,000, official figures show. The austerity programme launched in 1993 was seen as the biggest factor in the downturn, because it limited credit and restricted purchases by state companies. Mr Yu said foreign investors were still welcome to participate in China's car industry but any new applications would be considered very carefully. 'Apart from assembling, other sectors in the industry also need foreign capital, especially in upgrading the existing facilities and making parts and components,' he said. For instance, the central government has approved to Nanjing Yue Jin to develop one of China's key car engine plants with a foreign investor, while the US's Ford and Japan's Nissan were in negotiations with a Chinese party. China announced foreign investment guidelines in 1994 that stated the kinds of investment projects that were to be encouraged by the central government, and those to be discouraged or not allowed. It also stated the share limitations for foreign investments including the banning of majority foreign stakes in infrastructure investments. Mr Yu explained that these guidelines would be reviewed from time to time to reflect China's latest economic developments and trends in foreign investment. Mr Yu said such guidelines were meant as a reaction to the latest market conditions, and not protectionism. By capping new car plants, it was hoped existing foreign joint ventures would have a better chance of success. 'China would continue to open the market and also provide a level playing field,' he said. China would not encourage protection such as providing special funding to individual sectors as a kind of support, Mr Yu said.