China Auto Market Pulled By Weakening Economy, Purchasing Restrictions

by Cameron Aubernon

Published: May 2nd, 2014

china auto market pulled by weakening economy purchasing restrictions

A weakening local economy and increasing purchasing restrictions could put a hamper on automotive sales in China according to the analysts at LMC Automotive.

Just-Auto reports light vehicle sales in March 2014 — totalling 2.03 million — were lower than those in January and February, prompting a 10 percent decline in growth during Q1 2014 over the same period last year. In addition, momentum from Q4 2013 failed to carry over into the next quarter, as the selling rate peak of 23.3 million in the last two months of the previous year fell to an average of 23.1 million.

The cause of the peak, however, could throw sales into a roller coaster. Purchasing restrictions in cities such as Beijing, Tianjin and Hangzhou — enacted to help combat air pollution by selling a set number of license plates per year — stirred a wave of panic-buying during Q4 2013, and with the potential for more to come — especially if new restrictions come quickly — another wave of panic-buying could precede a sales slump, followed by another sales spike.

Amplifying this effect, China’s economy has been in a slump as of late, with yearly GDP growth dropping to 7.4 percent YoY Q1 2014 from 7.7 percent in the previous quarter. Manufacutring, sales and exports all declined, along with property prices in smaller cities. In response, the government plans to boost stimulus measures, though they may only be effective in the near-term as the nation’s investment-driven economy model approaches its limits.

#China #EconomicStimulus #LMCAutomotive #Panic-buying #PurchasingRestrictions #SalesSlumps #SalesSpikes #WeakeningEconomy

Cameron Aubernon

Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.

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13 of 15 comments

Superdessucke on May 02, 2014

Great that they want to reduce pollution but they may want to start with their giant coal burning factories!

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Xeranar on May 02, 2014

As compared to most of the authors here I have to give credit, Cameron seems to have a fair appreciation for economics. I'm not sure what China can do to avoid the obvious contraction phase that is coming besides to keep trying to use their state controls to enact keynesian economics (since they aren't going to do socialism...because they're not socialists or communists for that matter...). This is what happens when you drive an agrarian society into the industrial II state in a matter of 50 years. There is bound to be a crash and we're likely to be seeing the beginnings of it now. Not that they don't have a great deal of surplus cash and assets to deal with it but their markets have been hot for nearly 2 decades, far hotter than they should be. The fact they've been able to out pace inflation by nearly double (or triple in some years) is amazing but the car market that relies more on consumer consumption power than state support is going to take the hit first.

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- Big Al from Oz on May 02, 2014
  
  @Xranar The Chinese will not crash. The Chinese government still has quite considerable clout by steering China economically. The Chinese are now making changes to their financial and banking sectors. Service industry will take up the slack and wages will rise relatively rapidly in China. This is a great opportunity for countries like Australia that can provide protein. Soon you will see the yuan become a reserve currency. Within 15 years it is estimated that the Chinese financial sector will be twice the size of the US and UK combined. A growth rate of over 7% is still quite high. What we must remember it is 7% of an economy the size of the US in PPP terms. When the economy was growing at above 9% Chinese GDP was much smaller. So, I'd rather have 7% of $17 trillion US than 10% of $10 trillion US. I would like to see what the Chinese are doing in EV, since they have been buying up US taxpayer built business like Solyndra and some EV companies. I do think in the future China will be the largest exporter of EVs. They are just too expensive in the West to manufacture without hefty socialist subsidies and handouts to the consumer and vehicle manufacturers to exist. I would just accept like many consumer products in your home, your kids in the US will most definitely have a Chinese vehicle in your driveway within a decade or two.
  
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- Syke on May 02, 2014
  
  @Big Al from Oz Regarding the presence of Chinese cars in American driveways: Of course it's going to happen. Once the quality is up to acceptable levels, parts and service are in the same ballpark as the current marques presently being sold, and the price is cheaper than anything else on the market - you can say goodbye to all those protestations of ideological purity ("I ain't buying no Commie Chinese piece of crap") in all but the most hard-core. And Chinese cars will become at least as normal in the US as a Mitsubishi. Money talks. And it talks a lot louder than anything else.
  
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- Niky on May 02, 2014
  
  @Syke It's still about product, though. Having seen some of the newer models, I'd say China's best cars could steal sales away from some of the weaker brands in America in the absence of reputational hurdles. Granted, "Chinese-made" is still an epithet in America, but it's not as damning as in other markets the Chinese tried to penetrate first. I'd say give it five or six years for the first serious imports. Then give it another four or five for the idea to take hold in the market and for Chinese brands to make serious inroads into America and other first-world markets. They have a small but growing presence in isolated markets and developing nations, but I wager the push for third-world friendly product from the big boys (Nissan-Datsun, Ford's Escort and their old-tech Figo, Toyota's Etios, Agya, etcetera) is going to prove troublesome for both the Chinese and Indian car companies going forward.
  
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- Superdessucke on May 02, 2014
  
  @Syke It does, and that's why your utopian Chinese vision won't come to pass... "Service industry will take up the slack and wages will rise relatively rapidly in China." Big Al said it. Once wages rise to a certain point and their public demands pollution controls and workplace safety measures, manufacturing will move along to the next low wage hotbed, or maybe even here once the unfair advantage China enjoys gets eaten up at the margin. Put simply, the Chinese will get cut off at the knees by their own success before they reach the point of building vehicles that would be competitive here.
  
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- RobertRyan on May 02, 2014
  
  About two years ago , economists were warning about the housing bubble in China as a result of more people moving from the farms to the cities. problem is if their is a crash it will reverberate in North America and Europe as a lot of Automobile companies are now relying on China for massive growth.
  
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Big Al from Oz on May 02, 2014

@Superdessucke I don't have a Utopian Chinese vision. I'm a realist. China will not get cut off at the knees. How can this be so, are OECD economies cut off at the knees? Why is China different than the US? Is the US cut off at the knees (yet)? My comment is challenging the commenters on TTAC who dismiss China. Niky made a comment about other countries challenging China, I do agree. But China will become like the US, in that it's size will dictate even global trends. Whether this is good or bad has nothing to do with my comments. It appear the guys who, display the fanboi attitudes are the ones who have the most difficulty adapting to a different vision of the world. China will become the largest and most influential market in the auto industry within a couple of decades. That's a reality.

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- RobertRyan on May 02, 2014
  
  @Big Al from Oz, I would disagree with that, but its size and growing market will impact on other markets globally. as it already is.
  
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- Big Al from Oz on May 02, 2014
  
  @Robert Ryan If you look at the so called 'One Ford' (that is if you live outside of the US or China). Ford have vehicles that are for the Chinese market. GM tailor for the Chinese market. Even the Europeans are starting to tailor their vehicles for the Chinese market tastes. You will see more of this as the Chinese gain more affluence. Their affluence will influence. Sooner or later the design of vehicles that we use will have the Chinese influences incorporated. It will just meld into what we have and drive and most will not even know.
  
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- Superdessucke on May 03, 2014
  
  The Chinese gained their present manufacturing advantage via a massive supply of cheap labor and little to no pollution controls or labor laws. Unlike companies that try to operate in the US and other first world countries, they do not have to pay a living wage, provide basic workplace safety standards, or implement substantial anti-pollution measures in their plants. The middle class you foresee changing the landscape is totally borne of that manufacturing advantage. It isn't like China is otherwise and innovative hot bed or a cutting-edge in education and skills. Once their advantage starts to erode (wages go up and demand for clean air and safety causes action) China will become less and less attractive as a producer, which could put the brakes on the machine. That's what I meant.
  
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- RobertRyan on May 03, 2014
  
  @Big Al from Oz "GM tailor for the Chinese market. Even the Europeans are starting to tailor their vehicles for the Chinese market tastes" Correct they are tailoring for the Chinese market as well as other markets across the Globe. Problem is China's 140 local brands in the long term are going nowhere. They are providing a service for the Communist Party in providing cheap accessible products for people who want an Automobile in China. Foreign Brands are for the aspirants, not locally produced ones. Foreign manufacturers are making cheaper vehicles for the Chinese Market to capitalize on this desire.
  
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Th009 on May 02, 2014

A slump generally means a period of reduced economic activity. In this case, Chinese economy (and auto sales) is still growing at over 7%, a huge number in any major market. What's happening is that the growth is easing, or moderating ... or being damped. The market is still growing, though. And the major cities (with restrictions) are now only a small part of the total market.

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