BEIJING -- Chinese authorities are considering the introduction of a withdrawal mechanism to force near-bankrupt automakers out of the bloated automotive industry.

Related publication:

The Ministry of Industry and Information Technology issued a circular on its website Tuesday, revealing that it had decided to set up the mechanism in a bid to advance the core competitiveness and speed up the upgrade and transition of the auto sector.

China is currently home to about 1,300 automobile and motorcycle manufacturers, including 171 car, truck and bus makers, more than 900 specialty vehicle manufacturers, 135 low-speed three-wheeled lorry and farm truck makers, and 120 motorcycle assemblers, according to the MIIT.

However, nearly a quarter of these manufacturers are on the verge of bankruptcy, barely producing anything despite obtaining production approvals from supervising authorities, the statement said.

Some of these companies sell their shell resources to private investors, which are eager to enter the flourishing auto market that has witnessed a fast boom over the past decade.

According to the statement, automobile and motorcycle manufacturers that have already declared bankruptcy or have entered bankruptcy liquidation procedures will be disqualified for production.

Passenger vehicle and motorcycle producers that make no more than 1,000 vehicles annually for two consecutive years, or large and medium-sized bus producers and light and heavy-duty truck producers that assemble no more than 50 vehicles annually, will be ordered to overhaul production. If they are still unable to meet the required standard in two years, they will be disqualified for production.

Industry insiders say the move will block the way for private companies to enter the auto manufacturing business by purchasing the shell resources of those half-alive companies.

"The new rule will push forward the elimination of outmoded capacity in the industry and help realign advantageous resources," said Wang Yuchun, deputy general manager of FAW Car Co Ltd, the auto branch of the Changchun-based FAW Group.

For more subscription details of AutoChina, please visit our E-Shop.