China’s auto industry has seen extraordinary growth since the downturn began in the West in Q4 2008. The government encouraged lending, and also cut taxes on auto sales. As a result, sales jumped 49% in 2009, from 6.9m to 10.3m. And then they jumped a further 29% in 2010.
In 2011, however, sales have slowed sharply, as the chart shows:
• In H2 2010, sales rose 19% in Q3 and 26% in Q4 (orange line)
• In H1 2011, they rose 9% in Q1 and just 2% in Q2 (red square)
Partly this was due to taxes being raised back to 10% from the 5% crisis level. But equally, cities such as Beijing have restricted car ownership, after the mammoth traffic jams seen last year.
Opinion is now divided on the outlook:
• The official Development Research Centre forecasts the market may triple in size over the next decade, to between 50 – 70m. They also expect 2011 to be up 10% versus 2010.
• But the head of China’s Passenger Car Association has warned that sales might actually decline in 2011 for the first time since 1992.
• GM’s China head is also cautious, having seen negative growth in May. He cites higher gasoline prices as a major discouragement to sales.
Clearly, reasonable people can therefore disagree about what happens next. However, the issue of gasoline price seems critical.
It was easy enough to encourage people to buy cars with borrowed money when taxes were also being cut. But China is a relatively poor country. To be ‘middle class’ means having an income over $3k/year, a long way below equivalent levels in the developed world.
Rich Chinese with Western-style incomes are still able to afford their luxury cars. But the blog suspects many ordinary Chinese have probably abandoned their dream of car ownership for the moment.