The latest vehicle market numbers for China appear to show no let-up in the sales boom that took off last year as a result of Chinese government measures designed to keep its economy ticking over smartly despite the impact of global recession.

And with economic growth still in the 8-9% pa territory, there is every prospect that incomes will keep rising, fuelling demand from a rising urban middle-class for whom car ownership is now within reach. Vehicle manufacturers have remained steadfastly bullish on the Chinese vehicle market outlook, citing still low per capita car ownership levels and the brisk performance and momentum of the economy. China’s economy is also becoming increasingly less dependent upon exports to the West as domestic demand continues to gain traction.

But are there a few clouds bubbling up in the seemingly endless blue sky of Chinese automotive growth?

The recent visitor to many of China’s cities will be only too aware that the urban road infrastructure is struggling to keep up with the recent influx of vehicles to the parc. Traffic congestion is becoming a problem and the authorities have, in recent years, also become much more concerned about the environmental consequences (especially air quality) that have followed such rapid growth in motorised transport.

Some analysts believe that the underlying dynamics of the Chinese car market are shifting, with some degree of market saturation in the most densely populated urban areas resulting from the rising cost of car ownership.

As well as the traffic congestion, gasoline prices have just increased, while the costs and hassle of finding parking places – at home and place of work – is also contributing to higher vehicle operating costs for city motorists. Car parking spaces in some cities are much prized and expensive. When they built the gleaming office blocks in the new metropolitan CBDs they tended not to plan for the legions of future motorists who would need underground car parking.

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By GlobalData

Ash Sutcliffe, of Qingdao-based website China Car Times, says there are likely to be changes in terms of where future growth of the Chinese car market is based, though he concedes that for now, the market is continuing to show very strong growth.

“Sales are likely to be strong again this month, but sales in the inner cities will likely become more difficult in the future due to pressures in these areas,” he says.

“But there could be higher sales in the suburbs and away from the most densely populated urban areas to help counteract that. Will there be a 20m unit market by 2018? I don’t see China’s car market going quite that high – though some people do.

“Certainly the economic growth wave will spread wider and there is good potential for growth in the suburbs and the countryside, smaller cities or towns – rather than the massive inner city metropolis areas that have been a major source of higher sales in recent years.”

And he cautions that market analysts will want to keep a close eye on the market over the next six months. The summer is a period when sales in China can show seasonal weakness.

And he cites the price of gasoline as a new area of concern that could also coincide with rising official intervention over chronic traffic congestion and air quality in China’s big cities. While the gasoline price hike won’t derail car market growth, it will have some psychological impact on already under-pressure city car users.

The government has just announced gasoline price hikes that will add 3% to the typical price of a litre of unleaded (it has gone up to RNB6.92 or GBP0.69 a litre in Beijing). It’s the first rise this year and widely expected not to be the last.

“There will be some knock-on impact from this, though I don’t expect it to be big,” says Sutcliffe.

“But it cranks up the pressure on car ownership a little further. Perhaps more significant is the suggestion that the Chinese government is preparing motorists for more hikes further out and working on the assumption that the price of a barrel of crude oil is heading way over USD100 a barrel.

“A series of gasoline price hikes could be in prospect and that won’t be an appealing prospect at a time when there are other pressures on car ownership. Obviously, any sharp slowdown in China’s economy could magnify problems in the car market.”

Sutcliffe is keen to keep things in perspective; the latest figures show continued strong market growth and there is no sign of a sharp slowdown, even if maintaining high year-on-year percentage growth rates will become more difficult as the year progresses. 

“While the government is clearly keen to keep the economy growing reasonably quickly and does not want to see serious disruption to a ‘pillar’ industry like automotive, there are some pressures at work that the automotive industry will be facing in the coming months,” he says.

Dave Leggett