China is getting tough on overcapacity in its automobile market, said a Bloomberg report. The move could be good news for established companies like General Motors Co. (NYSE:GM), but automakers new to the world’s largest automobile market could take a hit, said the report.

For seven years, foreign carmakers received incentives for their Chinese factories as the country courted foreign investors. Now, foreign auto companies are only eligible for incentives on facilities set up and approved by the government before Jan. 30, and the country may be slower to accept new applications, said Bloomberg, citing research firm LMC Automotive.

As a result, foreign carmakers that arrived early in the market, including GM and Volkswagen AG (VOW), are in a good position since any expansion plans they may have would have already received approval from the government, according to consulting firm Booz & Co.

It is likely that demand will increase in China, where 4.7 percent of the population owned a car in 2009, compared with about 51 percent in Japan and 81 percent in the U.S., according to figures from the Japan Automobile Manufacturers Association.

Detroit-based GM holds the title of number one foreign automaker in China. On Feb. 16, the company reported record net income of $9.19 billion for 2011. The company said its market share in the country was more than 13 percent last year, more than triple the 4.1 percent it held in 2001. GM plans to double deliveries in the country to 5 million by 2015, and is set to receive the go-ahead to build a 7 billion yuan ($1.1 billion) factory, the Hubei Environmental Protection Bureau said on its website this month, said Bloomberg.

GM’s China presiden Kevin Wale said China has changed its policy because the government is looking to move foreign investment into different industries, “In the near term, I don’t see a dramatic change in the way the Chinese government wants to run the automotive industry,” said Wale.

Japanese financial services firm Mizuho Financial Group Inc. (8411), estimated in December that a glut started in China’s auto industry last year and will worsen every year through 2015.

The Chinese government does not want to entirely cut off foreign investment, but would like to divert it into other areas such as auto components and encouraging local research and development capability, especially in hybrid and electric vehicles, according to LMC.

To contact the reporter on this story: Gina Smith at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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