CHINA'S fledgling car industry, under immense pressure from foreign giants vying for a share of the mainland market, has become the latest victim of the Government's policies to contain runaway inflation. Beijing has issued a circular that warns new car and light vehicle projects not listed in the state's plan will be cancelled. The China National Automotive Corporation (CNAC) revealed yesterday that major mainland vehicle makers had produced 87,900 units in August and sold 79,800. Both figures were nearly 10,000 below July's. Government officials in charge of the industry said the main reasons for the slump were Beijing's recent moves to restore order in the financial sector and strengthen macro-economic control. In particular, the control of bank loans and institutional purchasing power had significantly affected the performance of the car market. This week, the Government also recorded a continued fall in the sale of imported electric appliances in major Chinese cities since June. After 30 months of rapid development, the vehicle industry first saw a decline in May. But a big blow came in July, after the Government imposed the retrenchment policies to cool down the overheated economy. Production and sales of vehicles both tumbled by 17,000 units during the month. Xinhua (the New China News Agency) yesterday quoted officials as saying that the supply of heavy, medium-sized and light trucks, light and mini-buses and cars all exceeded demand. Stocks of light trucks, buses and particularly cars are said to be mounting. Because of the sluggish market, vehicle prices, which have risen over the past few years, are starting to fall. The price for a Santana car, produced by a Sino-German joint venture in Shanghai, has dropped by about 20,000 yuan (about HK$26,800 at the official rate). Officials believe the weak market will continue for about a year. But they are optimistic about the long-term and stress that stocks, although increasing, have not reached a critical level. However, the sluggish market will force the industry to adjust its pricing policy. Prices of China-made vehicles have been kept artificially high under the Government's policy of protecting domestic industry through high tariffs on imports. The average profit margin of international car makers is about five per cent. But in China, sales margins can reach 30 per cent. The production profit margin ranges from 10 per cent to 20 per cent. From January to August this year, China's major car factories produced 827,300 vehicles and sold 783,600, 34.97 per cent and 28.95 per cent respectively more than in the same period last year. Officials expect total production and sales this year to exceed those of last year, and this year's target of producing 1.25 million vehicles to be met. The country has 126 vehicle assembly enterprises and 5,000 refitting plants, but they are plagued by poor technology and low efficiency. Local authorities are keen to establish a modern production base with the help of foreign firms. Guangdong, for example, is trying to bypass the state plan by persuading major Chinese manufacturers to set up assembly lines in the province.