China’s heavy-duty truck sales in 2013 jumped 21.7 percent to 770,000 units. But sales will neither go up nor down in 2014 for three major reasons.
First, the growth of the macro economy will remain stable, no factors are expected to prop up or drive down the expected economic growth. Second, no preferential or adverse policies related to logistics, infrastructure construction, real estate and heavy-duty trucks will be released. Third, no huge moves will be expected in truck inventory and product upgrades from the perspective of truck makers, dealers and customers.
It is very likely that sales in 2014 will be almost flat from 2013 with an estimated volume range of 720,000 to 820,000 units.
Macro elements: no better, no worse
According to decisions made at the Central Government Economic Working Conference held in December 2013, the core target of China’s economy in 2014 is to make progress while maintaining stability, which means the GDP growth will be no higher than the 7.7 percent achieved in 2013.
Institutional estimates of China’s GDP growth in 2014 are as follows: Chinese Academy of Social Sciences (CASS): 7.6 percent; State Information Center: 7.5 percent; World Bank: 7.7 percent; Morgan Stanley: 7.2 percent; Citi Bank: 7.3 percent; HSBC: 7.4 percent; UBS Securities: 7.8 percent; Bank of Communications: 7.8 percent; Fitch: 7 percent; IMF: 7.7 percent; Standard Charters: 7.4 percent; and survey of economists by CASS: 7.5 percent.
China will maintain a prudent monetary policy in 2014 with the overall monetary supply in shortage. However, the extreme financial shortage situation in 2013 will not occur in 2014. The reverse repurchase of the Central Bank at the start of the year has relieved the tight money supply. Moreover, the acceleration of deposit rate marketization will increase the supply of capital.
The central government will maintain a proactive fiscal policy with no clear tax reduction policies to be issued. Although the Replacement of the Business Tax with Value-Added Tax policy will keep on extending into industries such as railway transport, the overall beneficial factor will be less than the year 2012.
A general judgment in investment is that the investment growth rate of real estate and infrastructure construction may slow down while that of manufacturing and service industries will rebound. The estimated fixed assets investment growth rate in 2014 is 19.5 percent, lower than that of 2013, according to relevant institutions.
Fixed assets investment will not be too optimistic considering the tight monetary supply. However, as housing prices increased in 2013, which boosted large volume of land purchase in 2013, the real estate construction will not be as depressed as in 2009. Moreover, China Railway Corp. will keep continue to build new railway projects.
The sharp decrease of government expenditure will curb consumption. However, the boost in e-commerce and exemption of expressway tolls during major holidays will also stimulate consumption, therefore consumption rate in 2014 will maintain 2013 levels.
Impact of industry policy
The State IV emissions standards for heavy-duty vehicles could go into effect at the end of the first quarter, in the middle of the year, or at the end of the year. The implementation of the new standards will reduce truck sales in any case, thus, enterprises such as FAW Jiefang and Yuchai all predicted a less optimistic 2014. Not to mention that some dealers and truck makers sold State III-compliant trucks in advance in 2013.
Higher prices and concern over AdBlue and fuel quality may prevent some consumers in upgrading their trucks to State IV-compliant ones. However, as the implementation is gradually rolled out nationally, the new standards may not be a big shock to the market.
The Replacement of the Business Tax with Value-Added Tax policy did not seem to bring any positive effect to the market in 2013. Rather, tax burden at many logistics enterprises has increased. Fortunately, relevant departments under the Ministry of Finance have started studies on deductible taxes, including using toll and fuel costs to deduct taxes.
The series of adjustments will stimulate logistics companies to purchase new vehicles.
Many executives of heavy-duty truck makers believe that urbanization would continue to boost heavy-duty truck sales in 2014. New trucks will replace old ones due to safety and environmental concerns. The country may release more policies such as subsidies on yellow-label truck upgrades and regulations on city slag trucks.
Total e-commerce transaction in China reached almost ¥10 trillion ($1.6 trillion) in 2013, including over ¥1.8 trillion in e-retailing. The quick delivery demand provides huge development prospects for quick delivery, and also boosts sales of high-power heavy-duty trucks and trailers.
Inventory and product upgrades
Heavy-duty truck makers have offered mixed views on the market in 2014. Those that hold an optimistic view could add inventory while those that are pessimistic will reduce inventory.
Bold dealers stocked a large amount of State III-compliant trucks, while other dealers dare not to stock State III trucks due to unclear future of State III products. Dealer inventory as a result will stay in balance.
As many heavy-duty trucks purchased in 2010 need to be upgraded in 2014, the positive impact may offset the negative impact of the implementation of the State IV emissions standards. The heavy-duty truck market in 2014 therefore will not see much growth or decline.
(Rewritten by Jennifer Chen based on author’s article on find800.cn)