Retail sales of passenger vehicles in China, including sedans, MPVs, and SUVs, declined by over 25% to 1.034 million units in February 2026 to 1.385 million units a year earlier, according to data compiled by the China Passenger Car Association (CPCA).

The Chinese domestic light vehicle market is struggling with a slowdown in economic growth and the recent withdrawal of some government subsidies and tax exemptions for new energy vehicles (NEVs), while sales last month were also affected by significantly fewer working days, due to the Lunar New Year holidays falling in February this year rather than in January last year.

China’s economy expanded by a slower-than-expected 4.5% year-on-year in the fourth quarter of 2025, slowing from 4.8% in the third quarter, reflecting sluggish consumer spending and weak investment. Full-year GDP growth was 5%, underpinned by strong manufacturing and export growth despite the ongoing trade tensions with the US.

In the first two months of 2026, the vehicle market declined by almost 19% to 2.578 million units from 3.180 million units in the same period last year, with all major segments falling sharply.

Retail sales of new energy vehicles (NEVs), comprising mainly battery electric vehicles (BEVs) and plug-in hybrids (PHEVs), plunged by 32% to 464,000 units, with BEV sales falling by 35% to 278,000 units, while PHEV sales fell by 28% to 186,000 units. In the first two months of 2026, NEV retail sales declined by 28% to 1.06 million units.

Earlier this year, the Chinese government confirmed that it will continue its vehicle trade-in subsidy programme in 2026, as part of its broader policy of driving up domestic consumption, but has reduced its NEV purchase tax incentive from a full exemption to a 50% discount. GlobalData is forecasting a less than 2% increase in light vehicle sales to 27.3 million units in 2026, up from 26.9 million units in 2025, followed by a 3% decline in 2027 as the effectiveness of government incentives wears off.