Retail sales of passenger vehicles in China, including sedans, MPVs, and SUVs, increased slightly year-on-year to an estimated 1.858 million units in January 2026, after declining by 9% to 1.853 million units a year earlier, according to data compiled by the China Passenger Car Association (CPCA).

With this year’s Lunar New Year holidays falling in February, China’s vehicle market benefited from more working days last month compared with last year. Because of this, sales in February are expected to be weaker than a year earlier.

The slight sales increase last month follows three months of declines for the market, including a 14% drop to 2.261 million units in December 2025, following a year-long, incentive-driven rebound. The market is now looking somewhat saturated, while consumer sentiment in the country remains cautious.

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.

Sales of new energy vehicles (NEVs), comprising mainly battery electric vehicles (BEVs) and plug-in hybrids (PHEVs), are estimated to have increased by 2% to 800,000 units in January, from 786,000 a year earlier, to account for around 44% of total vehicle sales. Compared with December, NEV sales were down by 16%.

The Chinese government earlier 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 just a 2.7% increase in light vehicle retail sales to 27.63 million units in 2026, up from 26.89 million units in 2025, followed by a 4.2% decline in 2027 as the effectiveness of government incentives wears off.