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Slowdown on way for auto industry
By Pan Xiaoyi |
December 21, 2010, Tuesday
|
Print Edition
Print Edition
THE auto industry, a main engine in China's economic recovery over the past two years, may be decelerating as the possible expiry of stimulus incentives, additional taxes and slower economic growth put the brakes on its rapid expansion, according to industry watchers.
In the first 11 months of this year, China's auto sales surged 34 percent on an annual basis to 16.4 million units, according to the China Association of Automobile Manufacturers.
For all of 2010, sales of passenger cars, buses and trucks are expected to rise 28 percent to 17.5 million units, maintaining China's position as the world's largest auto market, the China Passenger Car Association said.
That follows a robust 2009, when sales powered ahead 46 percent to 13.6 million units.
"The booming sales of the last two years have overshot potential demand in the near future," said Yang Zaishun, vice secretary-general of the China Passenger Car Association. "Next year may see milder growth of between 10 percent and 15 percent."
Rao Da, secretary-general of the car association, agreed, saying it will take time to create new demand at such high levels.
"It is reasonable to expect year-on-year sales growth to drop in the first quarter of next year," Rao said, citing the likely expiration of preferential purchase taxes, of subsidies on car purchases by rural residents and of tax incentives for people who turn in older, gas-guzzling clunkers and buy new fuel-efficient cars. He also pointed to generally slower economic growth as China tightens credit.
"The expiry of stimulus packages could reduce sales by more than 1 million units, while slower economic growth could lead to smaller, even zero growth, in the commercial sector," Rao said.
Media reports claim the preferential purchase tax will definitely be scrapped next year.
China halved the 10 percent purchase tax for vehicles with 1.6-liter engines or smaller to 5 percent in 2009 and allowed it to rise to only 7.5 percent this year, which helped the country overtake the United States as the world's largest auto market.
"The cancellation of the preferential purchase tax will affect first-car buyers, who are very price sensitive," said Wu Hao, a Dongfeng Citroen dealer.
Subsidies on vehicle purchases by rural residents and on upgrading to new cars are also due to expire next year.
In the first three quarters, China earmarked 8 billion yuan (US$1.2 billion) to a program subsidizing rural vehicle purchases. That accounted for estimated sales of 2.1 million vehicles.
Meanwhile, for the January-November period, subsidies on trading old cars in for new boosted auto sales by some 38.2 billion yuan.
"If the stimulus packages end at the same time, the auto market and auto makers will be thrown into quick reverse," Yang said.
Such actions would be inconsistent with the nation's call to boost domestic consumption, industry watchers said.
Some in the market speculate that some subsidies may be extended, but with stricter rules imposed.
"It would be better to phase out the policies gradually in order to buffer the possible impact to the market," Yang said.
Many of China's smaller cities have pinned their development hopes on increased auto sales in the next few years.
"The real opportunity for domestic consumption is in the second, third and fourth-tier cities in provinces such as Shandong, Fujian and Guangdong, where the growth in the middle class and consumer confidence have been rising faster than in first-tier cities," said Shirley Ng, a researcher from Nielsen Co's China region.
Aside from government incentives being withdrawn, auto buyers also face the risk of additional vehicle taxes.
The National People's Congress, China's legislature, is reviewing a draft law to increase the taxes on vehicles with 1.6-liter engines or bigger - especially gas-guzzlers with engines of over 2.5 liters - to cope with an explosive growth of cars on the road that has led to higher pollution levels and major traffic gridlock.
"China will shift its focus from boosting consumption to containing pollution," said Su Hui, a senior official at the China Automobile Dealers Association. "The so-called vehicle and vessel taxes underscore a determination to curb excessive growth of cars."
Big cities such as Beijing, where traffic has become an urban nightmare, are also considering raising parking fees, levying congestion charges and increasing restrictions on out-of-town residents buying cars.
With the future so clouded for 2011, many people are rushing out to buy cars before the end of this year.
In November, sales of passenger vehicles, including sedans, sport-utility vehicles and multi-purpose vehicles, soared 27 percent from a year earlier to 1.28 million units.
The good news for green-minded drivers is that the subsidies of up to 60,000 yuan on the purchase of electric cars will remain in force.
Industry watchers have called for more incentives on fuel-efficient, low-emission vehicles to help that fledgling end of the industry develop.
But the market is still waiting for details of the 12th Five-Year Plan for the period through 2015 to spell out the government's intentions regarding the auto market.
In the first 11 months of this year, China's auto sales surged 34 percent on an annual basis to 16.4 million units, according to the China Association of Automobile Manufacturers.
For all of 2010, sales of passenger cars, buses and trucks are expected to rise 28 percent to 17.5 million units, maintaining China's position as the world's largest auto market, the China Passenger Car Association said.
That follows a robust 2009, when sales powered ahead 46 percent to 13.6 million units.
"The booming sales of the last two years have overshot potential demand in the near future," said Yang Zaishun, vice secretary-general of the China Passenger Car Association. "Next year may see milder growth of between 10 percent and 15 percent."
Rao Da, secretary-general of the car association, agreed, saying it will take time to create new demand at such high levels.
"It is reasonable to expect year-on-year sales growth to drop in the first quarter of next year," Rao said, citing the likely expiration of preferential purchase taxes, of subsidies on car purchases by rural residents and of tax incentives for people who turn in older, gas-guzzling clunkers and buy new fuel-efficient cars. He also pointed to generally slower economic growth as China tightens credit.
"The expiry of stimulus packages could reduce sales by more than 1 million units, while slower economic growth could lead to smaller, even zero growth, in the commercial sector," Rao said.
Media reports claim the preferential purchase tax will definitely be scrapped next year.
China halved the 10 percent purchase tax for vehicles with 1.6-liter engines or smaller to 5 percent in 2009 and allowed it to rise to only 7.5 percent this year, which helped the country overtake the United States as the world's largest auto market.
"The cancellation of the preferential purchase tax will affect first-car buyers, who are very price sensitive," said Wu Hao, a Dongfeng Citroen dealer.
Subsidies on vehicle purchases by rural residents and on upgrading to new cars are also due to expire next year.
In the first three quarters, China earmarked 8 billion yuan (US$1.2 billion) to a program subsidizing rural vehicle purchases. That accounted for estimated sales of 2.1 million vehicles.
Meanwhile, for the January-November period, subsidies on trading old cars in for new boosted auto sales by some 38.2 billion yuan.
"If the stimulus packages end at the same time, the auto market and auto makers will be thrown into quick reverse," Yang said.
Such actions would be inconsistent with the nation's call to boost domestic consumption, industry watchers said.
Some in the market speculate that some subsidies may be extended, but with stricter rules imposed.
"It would be better to phase out the policies gradually in order to buffer the possible impact to the market," Yang said.
Many of China's smaller cities have pinned their development hopes on increased auto sales in the next few years.
"The real opportunity for domestic consumption is in the second, third and fourth-tier cities in provinces such as Shandong, Fujian and Guangdong, where the growth in the middle class and consumer confidence have been rising faster than in first-tier cities," said Shirley Ng, a researcher from Nielsen Co's China region.
Aside from government incentives being withdrawn, auto buyers also face the risk of additional vehicle taxes.
The National People's Congress, China's legislature, is reviewing a draft law to increase the taxes on vehicles with 1.6-liter engines or bigger - especially gas-guzzlers with engines of over 2.5 liters - to cope with an explosive growth of cars on the road that has led to higher pollution levels and major traffic gridlock.
"China will shift its focus from boosting consumption to containing pollution," said Su Hui, a senior official at the China Automobile Dealers Association. "The so-called vehicle and vessel taxes underscore a determination to curb excessive growth of cars."
Big cities such as Beijing, where traffic has become an urban nightmare, are also considering raising parking fees, levying congestion charges and increasing restrictions on out-of-town residents buying cars.
With the future so clouded for 2011, many people are rushing out to buy cars before the end of this year.
In November, sales of passenger vehicles, including sedans, sport-utility vehicles and multi-purpose vehicles, soared 27 percent from a year earlier to 1.28 million units.
The good news for green-minded drivers is that the subsidies of up to 60,000 yuan on the purchase of electric cars will remain in force.
Industry watchers have called for more incentives on fuel-efficient, low-emission vehicles to help that fledgling end of the industry develop.
But the market is still waiting for details of the 12th Five-Year Plan for the period through 2015 to spell out the government's intentions regarding the auto market.
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