Is the Chinese Car Bubble Bursting?

Everybody is waiting for a sign of the Chinese car boom to go ka-boom. Bloomberg aims to please, and has the story that Chinese “passenger-car sales growth slowed in May as falling stock prices eroded wealth and consumer prices rose in the world’s largest automobile market.” Bloomberg is alarmed that growth was only 25 percent. Let’s have a look.

First of all, the data comes for the China Automotive Technology & Research Center, CATRC is foremost a safety and technology research center, they do stuff like trying to implement C-NCAP, the safety standard that is modeled after EU-NCAP, which is modeled after the American NCAP. CATRC usually is not in the business of counting cars. That falls under the purview of the China Association of Automobile Manufacturers (CAAM). They should report next week.

Second, CATRC and Bloomberg picked only passenger vehicles. To pick that number is as ridiculous as not counting pick-ups in the U.S. The monthly count in China is all motor vehicles with 4 wheels or more. That number, buried deep, deep down in the story, reflects a growth of 29.7 percent last month to 1.19m units.

Third, CATRC should leave the counting to the CAAM. CATRC was wrong last month.

Now for the gloom and doom.

What CTARC and Bloomberg seem to forget is that the May number (if it is correct) is higher than expected. There is something called a scale effect. Should not be alien to CATARC or Bloomberg. In May 2009, the Chinese car market (all types) rocketed up by 55 percent. 30 percent or 25 percent on top of that growth is huge. If the U.S. would have these numbers, there would be a Champagne shortage.

China closed out 2009 with a growth of 45 percent to 13.6m units. Everybody had predicted that in 2010, growth would take a more sedate tack. Guesses were anywhere between 17 and 25 percent for 2010, which would lift the market to anywhere between 16 and 17m units. Q1 sales in China did not follow that prediction, sales for the quarter were up 72 percent. In April growth finally started moving towards to forecasted area, with a growth of 34.4 percent. Combined sales in the first four months were 6.17m units, up a whopping 60.51 percent.

I’ve said it before, and I say it again: Percentage wise, growth numbers MUST come down as we compare to a higher and base in the previous year. So far, China is way above budget. In Q4, there should be negative growth (again, a comparison effect.) Everybody will whine about a collapsing market – until the end of year number comes in.

If China would maintain that 60 percent growth rate, we’d end up with 22m cars by the end of the year and the world would complain about oil drying up.

Rough crowd.

By the way: China’s automobile exports rose 54.9 percent year-on-year in the first four months of 2010 to 149,800 vehicles. Total imports rose 174.6 percent to 255,500.