China is sending its world-beating auto industry into a tailspin

On the outskirts of Chengdu, a city of 21 million, a showroom in a shopping mall offers extraordinary deals on new cars.

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Visitors can choose from some 5,000 vehicles. Locally made Audis are 50 per cent off. A seven-seater SUV from China’s FAW is about $22,300, more than 60 per cent below its sticker price.

These deals - offered by a company called Zcar, which says it buys in bulk from automakers and dealerships - are only possible because China has too many cars.

Years of subsidies and other government policies have aimed to make China a global automotive power and the world’s electric-vehicle leader. Domestic automakers have achieved those goals and more - and that’s the problem.

China has more domestic brands making more cars than the world’s biggest car market can absorb because the industry is striving to hit production targets influenced by government policy, instead of consumer demand, a Reuters examination has found. That makes turning a profit nearly impossible for almost all automakers here, industry executives say. Chinese electric vehicles start at less than $10,000; in the US, automakers offer just a few under $35,000.