China’s auto market goes ex-growth

China auto Aug11.pngChina’s auto market has gone ex-growth, as the above chart shows. Monthly sales in July (red square) were the 2nd lowest since July 2010.

The problem is the continuing fall-out from the end of China’s great credit bubble. Inflation hit a new high of 6.5% in July. More importantly, food prices rose by 14.8%, up from 14.4% in June.

This would be bad enough in the West, where average incomes are ~$40k/year. But China is a relatively poor country:

• Average urban household income was $2810 last year
• Average rural household income was just $870

Food and energy costs therefore take up a very high proportion of ordinary people’s income.

This means China will have to do more to control inflation. Bank lending, the main agent of growth since 2008, will have to be further reduced. In turn, the government will therefore likely aim to preserve jobs via increasing exports again.

This is already emerging as a key risk in auto markets, as the blog will discuss tomorrow.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. 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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