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March 6, 2020

Guangzhou incentives seen boosting depressed China sales

Guangzhou's recently announced auto consumption measures are credit positive for China's auto industry, providing a boost for the sector, Moody's Investors Service said.

By Olly Wehring

Guangzhou's recently announced auto consumption measures are credit positive for China's auto industry, providing a boost for the sector, Moody's Investors Service said.

"Auto sales in China have been on a downward trajectory, shrinking by 8.2% in 2019 due to US China trade disputes and slower economic growth," said the ratings agency's Gerwin Ho.

"In the wake of coronavirus outbreak we expect auto sales to further drop by 2.9% in 2020 on weaker consumer and corporate demand as well as production impairment but Guangzhou's new measures are likely to provide a buffer against this forecast."

Earlier this week, the municipal government of Guangzhou – capital of Guangdong province with 14.9m permanent residents and 2.8m vehicles – announced measures to promote auto consumption, including a RMB10,000 subsidy for each new energy vehicle purchase, a RMB3,000 subsidy for purchasing a new China VI emission standard vehicle when replacing or scrapping a used vehicle, and accelerating the implementation of previously announced relaxation in vehicle ownership controls.

The measures are part of a plan announced by the Guangzhou government to support its local economy by mitigating the economic weakness caused by the disruption from the ongoing coronavirus outbreak.

Moody's – and others – expect Chinese auto sales to decline significantly in February and March 2020 compared with the same period last year, with automakers likely to claw back only about half of the lost sales during the rest of the year.

But sales will begin to grow again in 2021, with a rebound of about 2.5%.

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