THE mad dash to build car factories in China continues. On April 23rd, as the Beijing motor show opened, Volkswagen announced plans to build its seventh plant in China, just a few days after Ford—a relative latecomer to what is now the world's largest car market—had said it would build its fifth. As the price of entering China, foreign motor manufacturers are required to produce their cars in partnership with a local firm. China's domestic carmakers—there are about 100 of them, far too many for even a market of this size—also produce vehicles under their own brands in separate factories, and many of these are also expanding. By some estimates, carmaking capacity in China may grow by 20-25% this year, whereas sales growth may be as low as 5%. Is the industry heading for a pile-up? A recent number-crunch by Carson Ng of HSBC, a big bank, reckons that the gap between demand and potential supply is not as stark as it seems. This year's new plant openings, he explains, are skewed towards later months, so the effective increase in potential output for the year as a whole may be as low as 10%. Sales may be stronger than expected, especially if inflation falls, so it is possible to imagine them almost keeping pace with the rising supply. In the longer term, rates of car ownership are still way below those in developed countries. And despite pollution and road congestion, Chinese consumers seem to be positively aching to join the car-owning society, and are increasingly able to afford to do so. The upper end of the car market is still booming. BMW's Chinese sales rose by more than a third in the first quarter, compared with a year earlier. To capitalise on the apparently insatiable appetite for its cars, the German firm is launching a stretched version of its 3-series at the Beijing show. This is to appeal to the many buyers who want extra legroom in the back, since that's where they will be sitting, with their chauffeurs at the wheel.

Sport-utility vehicles are also selling like hot Chinese buns: if you can't afford a chauffeur, at least it's nice to drive a car with high seats so you can look down on other motorists. Sales of SUVs have gone up from about 350,000 five years ago to perhaps 2m this year (out of a total Chinese market for passenger cars of 15.5m) and look set to keep growing at more than double the rate of the overall market. That is why Ford launched three new SUV models at the Beijing show.

Encircling the cities

Things do not look so pretty at the smaller, “value” end of China's car market, dominated by local brands. James Chao of IHS, a forecaster, says there is already overcapacity in this part of the market. It looks set to get worse, as the foreign carmakers and their local partners add cheaper models to their ranges in China. Joe Hinrichs, Ford's Asia-Pacific chief, said that his company's introduction of a common set of “platforms” on which its model ranges worldwide will be based, will make it profitable to build and sell smaller cars than the Fiesta, the cheapest model it now offers in China (with prices starting at around $12,000). Like the other foreign makers, Ford is pushing ahead with opening new dealerships in China's fourth- and fifth-tier cities with populations of perhaps 1m. They are little known outside the country, in which the Chinese car firms have so far had a relatively easy ride.

A recent Free exchange column discussed “overinvestment” by China and concluded that the fears of this may be greatly overstated. For the country's motor industry as a whole, which can look forward to years of steady sales growth, that is probably right. But at the bottom end of the car market, the weaker competitors, turning out vehicles in their tens of thousands, will surely fall further behind as their turf is invaded by super-efficient multinationals and their big Chinese partners, enjoying the economies of scale from producing over 1m apiece.

As described in a fascinating new book on the Chinese motor industry, “Designated Drivers”, by Greg Anderson, an industry expert, the central government is well aware of the growing need for the country's motor industry to be rationalised. Yet many of the smaller makers are owned or subsidised by city and provincial governments, and their main intention is not to make profits but to soak up local unemployment and avert social unrest—the one thing the Chinese authorities at all levels most dread. Their owners and bosses will do all they can to resist cutting back.