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Policy effects major reason behind lackluster but surprising first half

The prospects of China selling 30 million vehicles this year could be in jeopardy based on the latest sales data released by China Association of Automobile Manufacturers (CAAM) on July 11.

Auto sales rose 4.5 percent in June to 2.17 million units, bringing first half sales total to 13.35 million units, up 3.8 percent.

At that rate, auto sales this year will eclipse 29 million units but fall short of the 30 million units that would have been possible if growth had maintained at least 5 percent, a pace that was forecasted by CAAM at the beginning of the year.

Slowing passenger vehicle sales growth (especially that of SUVs), rebounding new energy vehicle sales (especially those of new energy buses) and a shockingly strong heavy-duty truck market were the three major highlights of the market in the first half as far as segment performance is concerned.

But these characteristics are not so surprising after all if we consider the policy factors behind them. The effects of a lesser discounted purchase tax rate for 1.6L and below passenger vehicles (7.5 percent instead of last year’s 5 percent) are finally catching up. At our Monthly Automotive Salon (MAS) held in Shanghai on July 13 with a theme of China’s Auto Market in H1 2017 and Future Outlook (a detailed recap of the event will follow in our next issue), John Zeng, director of Asia Pacific Forecasting at LMC Automotive, described this as the result of the market “stealing” at least one month worth of sales volume from 2017 to 2016. What goes around comes around.

The NEV market is simply picking up momentum again after an updated subsidy policy and catalogue system were introduced earlier in the year, while the heavy-duty truck market got an upshot from new oversize and overloading requirements, which forced logistics companies and transporters to both upgrade to new vehicles and purchase more trucks.

Who would have thought a year ago at this time that the heavy-duty truck segment would be a major driver of the entire market in the first half of 2017?

That in fact reflects the nature of China’s auto market: that it is still a policy driven market that leads to wild swings in sales.

As Zeng pointed out, over the next few years we will see the effects of the recently announced CAFC+NEV “dual credit” scheme playout, which likely will have an effect on the mix of NEV products available on the market as foreign players race to meet the tough percentage requirement.

With the 1.6L purchase tax savings completely gone next year and pre-buy effects diminishing, the market toward the end of this year will likely again “steal” some volume from next year.

The industry should brace for negative growth in 2018 after another record year of sales this year.

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