China’s auto sales rise as bank lending booms

Consumer demand

SHARE THIS STORY

China auto Oct13Autos are now the largest single manufacturing industry in the world.  Not only do they directly and indirectly employ vast numbers of people, but they are also increasingly key to consumer spending.  Thus it is no surprise that governments have tried to increase auto sales since the Crisis began in 2008.

China is the prime example of this trend.  Annual sales in 2007 were just 6.3m in 2007 – no surprise, given that even today, average urban household incomes are just $4.8k and rural incomes only $1.7k.  But since 2008 it has become the largest auto market in the world, as its lending policy has led to an auto sales boom, as the chart shows:

  • Bank lending (red line) has doubled (109%) since 2008, comparing January-September 2013 with 2008
  • Auto sales (blue line) are up slightly more (138%) over the same period
  • The growing difference is due to the rise of the ‘shadow banking’ sector
  • This has recently been between 55%-87% of total lending, as official lending has begun to be cut back

As the Financial Times has described, based on Ann Stevenson-Yang’s report for J Capital Research:

“Everyone’s offering 0% financing now and in some cases buyers end up with their car for free. How? The buyer pays for the car but with the guarantee of the money back in two  years. The seller invests the money in the shadow banking system where he hopes for returns of 60% a year or so before selling up and giving it back. Not bad. But as Stevenson-Yang notes, in the past this kind of thing has “not ended well.” If you are getting 60% on your money (or even hoping to) you are not in an investment but in a pyramid scheme of one kind of another. And if you live in a country where any meaningful part of growth is built on such pyramid schemes you are living on the edge of a crisis.”

What does this mean for future auto sales growth?  In the past few months, there has been little to stop the lending and sales boom.  But next month’s Economic plenum may well start to move the economy in a new direction.  China simply cannot afford to allow lending to boom forever, even if the risks of bursting today’s bubble are also large.

Anyone assuming that auto sales growth will continue at recent levels is clearly making an enormous gamble on the new leadership’s ability to navigate these very tricky waters.   Most worrying is the thought that most companies haven’t even realised the gamble they are taking.

PREVIOUS POST

Benzene challenges financial markets' rosy view of the outlook

21/10/2013

This is Budget week, when the blog prepares to present its Budget Outlook for 20...

Learn more
NEXT POST

European auto markets head in a new direction

23/10/2013

The European auto market continues at 20-year lows, with sales down 4% in Janu...

Learn more
More posts
The Top 5 pandemic paradigm shifts
28/06/2020

The Covid-19 pandemic has accelerated the fundamental changes which were already underway in global ...

Read
Hertz goes bankrupt as non-essential consumer demand disappears
24/05/2020

The US Federal Reserve has now spent $7tn bailing out Wall Street. But it couldn’t save the 10...

Read
Smartphone sales head into decline as affordability becomes key
10/05/2020

The smartphone sales decline accelerated in Q1, as Strategy Analytics report: “Global smartpho...

Read
China’s plastic ban and recycling launch marks end of ‘business as usual’ for plastics industry
26/01/2020

Paradigm shifts start slowly at first, and it is easy to miss them. But then one day, they suddenly ...

Read
Automakers face stiff headwinds in big emerging markets
19/01/2020

Brazil, Russia, India and China disappoint as manufacturers face investment demands of EVs © Bloomb...

Read
Portugal shows the way to climate neutrality by 2050
24/11/2019

“If you don’t know where you are going, any road will do”. The Irish proverb’...

Read
The next billion phone users will be buying $10 smart feature phones, not $1000 iPhones
10/11/2019

Smartphone sales plateaued in Q3, down 9% since Q3 2017’s peak of 1.55bn, as the chart shows....

Read
Companies ignore the Perennials 55+ generation at their peril
13/10/2019

Nearly a third of the the world’s High Income population are now in the Perennials 55+ generat...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more