By on May 20, 2011

The rise of the Chinese auto market, which only surpassed the US to become the world’s largest in recent years, has drawn considerable attention from China-watchers and industry insiders alike. China’s rampant sales growth has paid huge dividends for firms who gambled on the Chinese market, in turn spurring more investment as every global automaker scrambles for access to China’s rapidly-developing market. As a result of several years of this gold rush mentality, everyone is now looking for China to stumble, to show the first signs of a bubble ready to burst.And over at Forbes, Handel Jones (the author of Chinamerica: The uneasy partnership that will change the world), thinks he may have found these first signs of slowdown in China’s auto production numbers.

Handel attributes the slowdown to three factors:

– The roads of the large cities, which represent the concentration of buying power for automobiles, are already highly congested. The fees for getting license plates in Shanghai are already over 50K yuan. One cannot imagine many more cars on the roads of Beijing, Shanghai, Guangzhou and Shenzhen. Even in the smaller cities, the traffic jams are becoming longer and longer. The potential speed of the cars is increasing, but the actual traveling speeds of cars in the large cities are slowing. It can oftentimes be faster to walk than to drive.

– Oil prices are increasing, with saturation in output from oil wells that are low-cost to operate. The oil imports of China are increasing, with increased competition for buying oil, which is resulting in prices per barrel of oil at the $112.00 level. Inflation has to be controlled, and oil and transportation costs affect many areas, including food costs.

– Cars need to be parked, and parking for cars is competing for space for people. Do car parks get built or do apartments get built?

Valid arguments, to be sure, but with Chinese car ownership still at 52 per 1,000 people, Handel’s brand of China-bear analysis remains a tough sell. On the larger level, however, the prospect of hundreds of millions of new cars taking to China’s roads has undeniable social, political, economic and environmental implications. Handel’s production data point is more likely to indicate a speedbump rather than a full-blown slowdown, but it’s never too early to consider the long-term evolution of the world’s largest car market.

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6 Comments on “Is The Chinese Car Market Showing Signs Of Slowing?...”

  • avatar

    Well since Beijing stopped to issue license plates (you need to win lottery), of course car market will slow and even drop in Beijing.
    If other cities do the same, the market will saturate.
    People outside cities are much poorer, so there isn’t as much a huge market for cars.
    I doubt the number of cars per person will ever get near the USA.

    • 0 avatar

      On the other hand, rural areas don’t have the parking/saturation problems of the big cities, nor do they have the level of service from public transportation. Think USA circa 1910, where similar factors were in play. What automobilized America, for better or worse, was the Model T pickup truck – ideal for getting farm goods to rail heads over unimproved roads. Rebadged VW’s won’t get that job done. A cheaper 4-seat HiLux might.

  • avatar
    George B

    Bertel, would Chinese customers with money rather live in the dense core of the city or the less dense edge of the city? In the US, parents raising children choose new neighborhoods with good schools at the edge while young singles prefer the center as long as crime isn’t too bad.

    • 0 avatar

      George, Chinese cities aren’t like NorAm cities. A typical Chinese city will be 6 to 40 story apartment buildings from core to edge and rice paddies beyond that. Most buildings older than 15 years old have almost no parking whatsoever, and even newer buildings have very few spaces. I’ve never actually seen a car park anywhere other than Hong Kong, and it cost something like RMB150 a day.

      cmoibenlepro is entirely correct in my view, peasants outside the city have little need or desire for a car. The market could well be on the way to saturation.

  • avatar
    Kevin L. Copple

    “The rise of the Chinese auto market, which only surpassed the US to become the world’s largest in recent years, has . . .”

    The Chinese auto market is only “larger” because it includes vehicles that are much smaller size, lower quality, fewer luxury features, fewer safety features, smaller engine capacity, smaller cargo capacity, etc. Many are little more than golf carts with windows.

    The US market is still larger in terms of cubic inches, horsepower, funtional bumpers (as opposed to hollow plastic shells), square inches of tread, cubic feet of passenger/cargo space, warranty coverage, etc.

    As I live and drive here in China, I could go on and on. But, it’s comparing apples and oranges in all the ways that affect automotive goodness.

  • avatar

    As China develops economically I think that car ownership levels will rise to levels comparable with more developed Asian countries like Korea, Japan and Taiwan. Car ownership levels in the dense cores of major cities will undoubtedly be lower but car ownership levels in the suburbs, second tier cities and rural areas are going to rise dramatically as incomes increase. Do not forget that in the outer suburbs of big cities like Beijing and Shanghai, traffic congestion is nowhere near the levels found in the city or inner suburbs and car is often much faster than public transport for suburb to suburb trips. I fully expect that Chinese cities will see a suburbanization trend similar to Tokyo for example. In second tier cities and rural areas where public transport is inferior/non existent and traffic congestion is not a problem there is massive room for growth as incomes increase.

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