Business Energy & Green Tech

Is 2013 the Year of the Car in China?

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The auto industry is humming over new data that show China car sales soared 45 percent in January, marking their strongest growth since April 2010, when government incentives during the global economic crisis helped to turbocharge the sector. Industry watchers are acknowledging that seasonal factors played a major role in this latest jump, but point out that they still expect to see a return to strong growth in the upcoming Year of the Snake, as China’s economy improves and consumers rediscover their love affair with cars.

From my perspective, I wouldn’t be surprised to see this year’s growth outpace last year’s 8 percent expansion, but suspect the figure may only rise a little and won’t be anywhere near the overheated growth rate of 34 percent seen in 2010. A main constraining factor will be local government efforts to rein in car sales as part of their broader campaign to ease road congestion and fight pollution, which has made major headlines these last few weeks due to heavily polluted air in Beijing. At the same time, Beijing is already showing early signs of tightening monetary policy to prevent a return of inflation, meaning banks and other lenders could also tighten their credit for new car loans.

All that said, let’s take a look at the latest data that show China’s vehicle sales rose more than 45 percent in January, according to the main industry association. A number of seasonal factors helped to drive the huge increase, which followed much more typical rises of 6.8 percent in December and 13 percent in November.

The main seasonal factor was created by timing of the Chinese New Year holiday, which occurred in January last year but is on February 10 this year. That change of timing resulted in 5 extra working days in January this year, which helped to boost sales. An industry expert said that year-on-year sales are likely to fall 35 percent or more in February for similar reasons, but added that combined sales for the 2 months of January and February are still likely to rise around 25 percent.

So what’s happening here, and who will be the most likely beneficiaries of this accelerated growth? From a broader perspective, it does seem like consumers are returning to the car market as China’s economy improves. Some people who favor Japanese cars also may be buying now after deferring their purchases at the height of tensions last fall during a territorial dispute between Beijing and Tokyo.

The resulting uptick in demand should benefit mostly foreign automakers like General Motors and Volkswagen, which continue to take share from struggling domestic rivals. But those same domestic rivals like Geely and BYD could also benefit from recent Beijing directives instructing government agencies to buy more domestic-brand cars.

In the end, I do think we’ll see growth return to the low double digit range, perhaps finishing the year at 12-15 percent. But cooling measures by Beijing and local government efforts to tame pollution and congestion will also temper the growth, meaning the Year of the Snake will be a solid year for auto sales but nothing like the turbocharged years of 2010 and 2011.

Doug Young lives in Shanghai and writes opinion pieces about tech investment in China for Techonomy and at www.youngchinabiz.com. He is the author of a new book about the media in China, The Party Line: How the Media Dictates Public Opinion in Modern China.

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