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.