Analysts: China Headed For A Slowdown

Edward Niedermeyer
by Edward Niedermeyer
analysts china headed for a slowdown

Chinese car sales were strong this year, increasing by 34.1% in the first 11 months of this year according to the China Association of Automobile Manufacturers and the WSJ. But those numbers have largely been driven by government incentives on cars with 1.6 liter engines or smaller, a segment that accounts for some 70 percent of the passenger car market. But, according to the CAAM

China will likely extend one incentive for small-car purchases–a cash subsidy of CNY3,000 a car for purchases of certain fuel-efficient vehicles with 1.6-liter or smaller engines. The purchase tax for small cars, however, will likely rise to 10% from the special low rate of 7.5% currently

Moreover, some cities (including Beijing) could start regulating the number of car puchases allowed, and this combined with a reduction in subsidy levels could cause sales to start declining.

According to several analysts quoted by MarketWatch, Chinese market sales growth could slow from its 30% and higher rate to a low-double-digits rate next year.

With a higher base for comparison and dissipation of stimulus effects, we expect China vehicle sales growth to slow to 11% in 2011

And it’s not just volume. Margins on Chinese market sales should go down as well

We believe the upward cycle of China’s automobile industry, in terms of corporate profits, will peak by 2011. With the supply-demand dynamics losing momentum, we expect margins of Chinese auto makers to return from super-high levels in the first half of 2010 to average levels in the second half of 2010 and in 2011

The Chineseautomakers are seen as particularly bulnerable because they tend to compete in the lower price points which are more vulnerable to reductions in subsidies. One analyst notes of Geely

Geely, along with other small car producers, is facing two problems – a glut in inventories and over-capacity

But, because penetration of inland markets remains low, analysts still see room for some growth… China is simply coming back to earth and growth will continue at a much lower level than it has over the past several years.

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  • Tparkit Tparkit on Dec 10, 2010

    When totaling up the factors on the downside, let's not forget China's real estate bubble: I reckon it's worse than this article from China claims. because China is export-oriented and bubbles there is happening into the headwind of a global depression. No customers, no cash.

    • See 2 previous
    • Charly Charly on Dec 12, 2010

      Chinese system sounds like (state-owned) leasehold and isn't exactly uncommon in the world, Hong Kong for instance has that system

  • PeteMoran PeteMoran on Dec 11, 2010

    The Chinese energy ministry just got the shock of their lives. They've seen growth in crude imports of 26% for the last quarter when they were hoping to contain it to 15%, and on significant rises in prices too. That might make the yearly figure somewhat close to a 30% increase. The Chinese see this as national savings being sent overseas after being burnt in a tail-pipe. The central party won't be letting this go on much longer. Not to mention the inability to actually drive what you own anywhere easily now that "everyone" is getting one. Get ready for the Chinese car-party hang-over.

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