A weakening trend for China’s economy is beginning to depress demand in China’s light vehicle market according to analysts at LMC Automotive.
However, there are other forces that could help to lift the market in the short-run, although that could bring a sharper downturn afterwards, the analysts say, warning of a “see-saw” effect in China’s vehicle market later this year.
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LMC says that the recent performance of China’s light vehicle market has failed to support the optimism which was fuelled by higher-than-expected growth achieved in 2013. Light vehicle sales growth in March was lower than January-February in both the PV (passenger vehicle) and the LCV (light commercial vehicle) sector, leading to all light vehicle sales growth as a whole in Q1 2014 sliding below 10%, according to LMC data.
With around 0.56 million LCVs being sold in March, LCV sales saw a decrease of 3% on the previous year, dragging the YoY Q1 growth as a whole down to 0.7%, from 3.4% in January-February. Even with a stronger sales momentum than LCVs, PV sales reached only 1.47 million units in the month. The YoY growth of 11% was still below the 13% achieved in January-February.
Furthermore, LMC says the SAAR has indicated that China’s LV market has failed to gather further sales momentum from a strong Q4 in 2013. After the selling rate peaked at 23.3 million units in November and December 2013, it proceeded to drop to 23.1 million units on average in Q1 2014, running consistently throughout each month of the quarter.
LMC says that higher-than-expected market performance was apparent in H2 2013, when China’s economic growth picked up as a result of faster investment growth, and panic buying over growing concerns that more tier-2 cities would join the list to impose vehicle purchasing quotas.
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By GlobalDataThe analysts at LMC say that the economy this year has been cooling. China’s GDP growth decelerated to 7.4% YoY in Q1 2014, from 7.7% in Q4 2013. Manufacturing remained sluggish, retail sales were lacklustre, and goods exports declined in Q1. In addition, property prices are falling in many smaller cities, LMC notes. Given the weak Q1 GDP data, the government is widely expected to step up its stimulus measures, LMC says. As the country’s investment-driven growth model is considered to be reaching its limit, however, while more stimulus measures would lead to an improved near-term economic outlook, they would also lead to a delayed and deepened mid-term risk. The automotive market would also see a similar effect to stimulus measures, LMC maintains.
LMC also notes that purchasing restrictions have caused ‘panic buying’. With the city of Beijing tightening its policy on restrictions and with Tianjin announcing its own yearly quota of new car plates, panic buying intensified throughout Q4 2013. In March 2014, Hangzhou city, the capital of the eastern Zhejing province, followed by imposing its own car purchasing restrictions. On the same night that Hangzhou announced its restriction policy, sales of 70,000 vehicles, equalling 25% of sales seen in 2013 as a whole, were booked at dealers in the city.
Looking ahead, LMC says that driven by worsening air conditions and the income from selling car plates, more cities are expected to introduce such restrictions. If these restrictions come at a fast pace, more buying action is likely to be pulled forward, with a more painful ‘payback’ effect or market downturn following in the market at a later time.
LMC maintains that more stimulus measures for China’s economy and more car purchasing restrictions in China’s tier-2 cities could push up vehicle sales in the short run, but the higher that vehicle sales are pushed up, the deeper the slowdown will be in the market in the longer run – the “see-saw effect”.
