China’s once-buoyant auto sales hits a blip, likely to see the first quarterly decline in 26 years

Daniel Ren
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China’s once-buoyant auto sales hits a blip, likely to see the first quarterly decline in 26 years

China’s seemingly unstoppable growth in auto sales came to screeching halt in September, registering the first contraction on a monthly basis in more than two decades as consumers tightened spending amid concerns that the worsening US-China trade relationship will act as damper on the domestic economy.

Vehicle sales for the month totalled 2.39 million units, representing a drop of 11.6 per cent on year, the first contraction since 1992. Analysts had been expecting a gain for the month, with an average forecast for a 5 per cent rise, according to Bloomberg.

The poor sales result came during a month known as the golden season for car dealerships, and has sparked concern that the September to December period could reflect the first quarterly drop in China’s automobile demand this millennium.

In the first nine months of this year sales rose to 20.49 million vehicles, up 1.49 per cent from a year ago, according to the China Association Of Automobile Manufacturers.

“A consensus prediction among industry officials is that the downward momentum will continue in the fourth quarter of this year, knocking the whole-year sales figure down to the level below that of last year,” said Ding Haifeng, a consultant with Integrity Financial Consulting. “In a market that posted growth for more than two decades, a year-on-year dip in sales is likely to prompt the government to take action to turn it around.”

China overtook the US to become the world’s largest auto market in 2009 and has retained the crown for nine consecutive years.

Last year a total of 29 million automobiles were sold in China, including passenger cars and commercial vehicles, up 3 per cent from a year earlier. Meanwhile sales of light vehicles in the US last year reached 17.13 million, down from 17.5 million units the year before, according to Statista.

Rising affluence among China’s rising middle class, estimated to include 300 million consumers, has been the main driver for domestic automobile sales for the past two decades.

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However, concerns are growing that mainland consumers are reining in spending to compensate for dwindling wealth effects as the stock market slump continues.

The Shanghai composite index tumbled to a four-year low on Tuesday, and is now down 23 per cent this year.

In an effort to help stimulate sales, the China Automobile Dealers Association has called for a 50 per cent reduction in the 10 per cent nationwide sales tax levied on auto sales, according to Reuters.

Analysts said it was still likely that Beijing would use administrative measure to help stimulate auto sales next year.

“It is not unusual that the government used tax cuts to spur vehicle sales,” said Gao Shen, an independent analyst of manufacturing sectors. “It is likely that a tax reduction on car purchases will be adopted again to support sales and the economy.”

Chinese carmaker have been under pressure this year. SAIC Motor, China’s largest carmaker by sales volume, saw its Shanghai shares slump 8.2 per cent since the start of the year. The share ended at 27.72 yuan on Wednesday. Geely Automobile Holdings, whose shares ended at HK$14.04 in Hong Kong on Tuesday, has slumped 49 per cent since the start of the year.

Beijing slashed the vehicle purchase tax to 5 per cent for cars with engines of up to 1.6 litres in 2015, as part of efforts to spur the economy.

Authorities raised the vehicle sales tax to 10 per cent earlier this year, after lifting the tax to 7.5 per cent in 2017.

This article China’s once-buoyant auto sales hits a blip, likely to see the first quarterly decline in 26 years first appeared on South China Morning Post

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