China’s auto sales rise only 2% in Q2

China cars Jul11.pngChina’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.

Reuters reports China’s gasoline prices are now 17% higher than last year. They are 50% higher than early January 2009. And, of course, food prices jumped 14.4% in June versus 2010.

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.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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