The consensus is growing that China’s economy has bottomed out after  light vehicle sales last month were among the strongest for the year.

That was in contrast to August 2008 when the lowest monthly vehicle sales for that calendar year were recorded in the midst of the global recession.

With the full effects of government stimulus efforts kicking in, sales of light vehicles – passenger cars and commercial vehicles less than 6-tonnes – reached 1.1m units in August 2009, the second highest monthly total for the year.

China’s August international trade improved as both import and export of goods stopped declining. Investment figures showed a rise as did consumption figures. Asset, housing and stock prices were all picking up, noted JD Power Consulting Shanghai senior market analyst Jenny Gu in an article published by China Daily Information.

“The consensus is growing that China’s economy has bottomed out,” Gu wrote.

“Strong August vehicle sales, up 78% year-on-year, contributed to other positive economic data and leaves China’s automotive market up 32% year-to-date in 2009.

Sales of passenger vehicles jumped by 76% to 737,000 units for the month, while light commercial vehicles increased by 81% to 338,000 units.

Adjusting for seasonal differences, August light vehicle sales suggested an annual market of 14m units, matching the seasonally adjusted sales rate in July and up significantly from the 8m unit sales rate witnessed in January of this year.

“While the recovery of China’s light vehicle sales from their January lows was initially dependent on government tax incentives and subsidy policy, this is changing, Gu said.

“The light vehicle sales boom today is less dependent on these two drivers. While sales were strongest in the segments that enjoy the tax incentive, mini car, sub-compact car and compact car, all other segments reported sale growth of more than 50% in August.

“The MPV segment supported by the recovering economy and an increase in auto financing managed to embrace the largest growth in August since July last year, with a 58% rise, shifting its year-to-date growth rate from zero to positive.

“Sales of minibuses declined for the fourth consecutive month as the demand seems to have been met through implementation of the ‘go rural’ policy.”

Gu said manufacturers have begun to expand capacity to meet the rapid growth in vehicle demand. GAC Honda’s two plants began operating three shifts instead of two in August with 1,200 more workers added while Chang’an Mazda has doubled monthly output at its Nanjing plant by adding a second shift.

“In the long term, we see BAIC adding a new minibus production line at its Zhuzhou plant with an annual capacity of 200,000 units by March 2010. Chang’an is expanding capacity of its Nanjing plant with an investment of $15m, which will double the annual capacity to 200,000 units starting in 2010. Optimistic about the future, Geely is building new plants in Jinan, Shandong province and in Chengdu, Sichuan province,” Gu said.

But she noted: “Not all share this unbridled enthusiasm. The National Development and Reform Committee has recommended that OEMs to be cautious with capacity expansion due to the risk of slowing demand growth in the years ahead.

“A divided opinion seems to be the norm on China’s future. Government incentives have generated strong light vehicle demand, while hot August sales across all segments along with positive economic news suggest that a recovery is taking hold.

“It’s uncertain whether the government will extend the tax incentive policy to next year or carry out new stimulus measures. We also believe a payback is in order for the stimulated demand growth in 2009. We maintain a cautious outlook for passenger vehicle demand in 2010, with growth decelerating to a rate of 2%-3% and for total light vehicle demand to match the 2009 total.”