As I have said many times before, the strength of the Chinese car market over the past two years has been pretty phenomenal. The Chinese vehicle market was running at a rate of over 19m units a year in October. This year’s market will be close to 18m units. That’s quite staggering when you reflect on the fact that 2007’s market was a mere 7.5m units. 

When growth keeps on exceeding expectations a sense of deja vu becomes apparent as people warn that the market cannot keep growing at the same pace and that a slowdown is inevitable. The market then carries on growing and the forecasters have a little bit of egg on their faces as they subsequently revise their China numbers up. Industry growth exceeding expectations has been the story of the last few years. The Chinese government has helped with a number of measures, but the underlying causes of such rapid market growth seem to be more based on rising incomes and the spread of wealth to inland cities.

We’re at another of those crunch points as we look into 2011. Just how sustainable is yet further market growth in China? Are we actually going to go over 20m units a year? The professional forecasters are saying – again – that a slowdown is coming. Fiscal stimulus measures are expected to be wound down next year and fuel prices are high and rising. The roads are getting very crowded.

The rate of growth of the Chinese vehicle market could slow from over 30% to more like 10%, the forecasters say. The incentives offered by manufacturers to boost sales in recent months also suggest they may be right this time, even if China’s economic growth stays close to 10% next year. That would still yield a 2011 vehicle market close to 20m units. And 25m-30m a year is not crazy talk beyond the middle part of the decade if things carry on as they are.

A key to that upbeat scenario for the auto market in China is that the economy continues to power on with annual growth at 10% or thereabouts, a rising proportion of that economic growth coming from increasingly affluent Chinese consumers. The stakes are perhaps getting higher in terms of the Beijing government’s management of the economy, keeping the hordes of urban migrants reasonably happy and the related requirement for high economic growth without destabilising asset bubbles or inflation. And international relations also require some deft management with respect to currencies and avoiding trade spats.

It’s been quite a run and those who remember the stop-go lurching of China’s economy in the past may wonder if it is cruising for a fall, pressures building. There’s certainly no sign of it yet.

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