As if the U.S. auto industry doesn’t already have enough problems, it looks like domestic automakers will have another competitor to deal with – China. A New York Times article said today the Chinese government has hatched a plan to be a leading producer of hybrid and all-electric vehicles over the next few years.

According to the article, the Chinese government is seeking to increase its annual production of hybrid or all-electric cars and buses to 500,000 by the end of 2011, compared to just over 2,100 in 2008. Subsidies of up to $8,800 will be offered to fleet operators for each electric or hybrid vehicle they purchase, and a supporting infrastructure of electric charging stations will be set up in major cities such as Beijing, Shanghai, and Tianjin.

What’s interesting here is that China’s ambitious production target is almost twice that of North America over the same time period. The consulting firm CSM Worldwide projects North American production of hybrid and electric vehicles will reach 267,000 by the end of 2011, with Japan and South Korea producing 1.1 million such vehicles by then. China could well leapfrog over the U.S. as a major supplier of advanced technology vehicles.

President Obama’s economic stimulus plan will free another $2.4 billion for hybrid and electric vehicle development. How General Motors, Ford, and Chrysler take advantage of this funding will likely bear heavily on the domestic automobile industry’s ability to compete in the global electric vehicle market.

Last week, President Barack Obama announced the availability of $2.4 billion to provide much-needed funding to produce next-generation hybrid-electric vehicles and the advanced battery components used in them. Under the measure, the Department of Energy will offer $1.5 billion in grants to U.S. companies to produce advanced batteries, $500 million to companies manufacturing electric motors and other related components for hybrid vehicles, and $400 million to demonstrate plug-in hybrid and other electric infrastructure concepts, such as charging stations.

The initiative would reportedly create thousands of jobs and also provide a tax credit of up to $7,500 to a buyer of a plug-in hybrid vehicle. It is part of the President’s goal to put one million plug-in hybrid vehicles on the road by 2015 to reduce gasoline use and lower greenhouse emissions.

This news will not alone lift the U.S. auto industry out of its deep economic malaise, but it can’t hurt. Several recent online news reports noted that sales of hybrid-electric cars – one of the few bright spots in the U.S. automotive industry over the past year – have slumped dramatically in recent months as gas prices fell below $2 per gallon. With the $4 per gallon fuel prices of last summer now seemingly a distant memory, the few car buyers out there are not exactly rushing out to buy hybrid-electric vehicles, given their price premium over gas-powered counterparts. Even the once hot-selling Toyota Prius has languished on dealer lots in recent months, forcing Toyota to offer price incentives.

But the fact is that gas prices will likely rise again – in the New York City area for instance, average fuel prices have crept back over $2 per gallon in recent days. The specter of higher gas prices along with stringent future regulations on fuel economy and greenhouse emissions dictate that automakers must stay on course developing electric and hybrid-electric vehicles. Helping cash-strapped U.S. automakers continue to design and manufacture these next-generation vehicles is a welcome move.