China Car-Sales Growth Slows on ‘Diminishing Wealth’

Business Week, June 1, 2010

June 1 (Bloomberg) -- China’s passenger-car sales growth slowed in May as falling stock prices eroded wealth and consumer prices rose in the world’s largest automobile market.

Sales of cars, sport-utility vehicles and multipurpose vehicles rose 25 percent from a year earlier to 885,800 last month, the China Automotive Technology & Research Center said in an e-mailed statement today. That compares with 34 percent growth in April, according to the center.

The Shanghai Composite Index fell 9.7 percent in May as Chinese stocks remained among Asia’s worst performing this year. A “diminishing wealth effect” along with high gasoline prices may contribute to a slowdown in auto sales, Credit Suisse Group AG analysts Adrian Chan and Hung Bin Toh wrote in a report last week. Vehicle sales could decline from year-earlier levels in the second half of 2010, they said.

“China had a sharp and noticeable ramp-up of sales last year, and it’s impossible to imagine the country maintaining the same type of growth momentum,” said Bill Russo, a Beijing-based senior adviser at Booz & Co., which advises automakers and investors. Russo said he expects demand growth to level out toward the end of the year.

China’s target of keeping inflation under 3 percent this year “will be a difficult task” because of rising prices for bulk commodities including oil and disruptions to some agricultural production, Yao Jingyuan, chief economist at the China statistics bureau, said May 28.

Tax Cut

China’s passenger-car sales have risen every month since February 2009 after the government halved the consumption tax on small vehicles to 5 percent the preceding month, according to separate data from the China Association of Automobile Manufacturers. The tax was increased to 7.5 percent this year.

Monthly passenger-car sales growth slowed in April to the most sluggish pace since March 2009, according to the manufacturers association, as China’s consumer prices rose 2.8 percent from a year earlier.

“Stimulus policies are gradually being phased out, and the number of consumers who advanced their purchases to take advantage of these policies is dropping,” Zhao Hang, head of the Automotive Technology & Research Center, said today in Beijing.

China’s total stockpile of vehicles parked at passenger-car makers and dealers rose by 64,900 units in May from April, the center said in today’s release.

Rising vehicle inventories among dealers and manufacturers, coupled with slowing demand, could lead to a price war, Credit Suisse said in its report last week.

Honda, Nissan

China’s vehicle sales may rise 17 percent this year to 16 million, and annual demand for automobiles may eventually exceed 30 million, according to the State Information Center.

Automakers including Honda Motor Co., Nissan Motor Co. and Volkswagen AG are rushing to add production capacity in China even as demand growth slows.

Honda aims to be able to make 830,000 vehicles a year in the nation by the second half of 2012, or 28 percent more than now. A strike by employees demanding higher pay shut the company’s Chinese factories beginning last week and talks continue over re-opening the plants.

Nissan plans to boost local capacity to 900,000 vehicles a year by 2012 and to expand further after that, CEO Carlos Ghosn said last month.

Volkswagen, FAW

Volkswagen and partner China FAW Group Corp. plan to invest 8 billion yuan ($1.2 billion) to build a plant in the city of Foshan in southern Guangdong province, according to the Foshan city government.

Total vehicle sales, which also include buses and trucks, increased 29.7 percent last month to 1.19 million. China’s automobile exports rose 54.9 percent year-on-year in the first four months of 2010 to 149,800 vehicles, today’s release said. Total imports rose 174.6 percent to 255,500.

The Automotive Technology & Research Center, affiliated with the state-owned Assets Supervision and Administration Commission, assists the government in formulating automobile industry standards, technical regulations and product certification testing.

--Tian Ying. Editors: Terje Langeland, Chana Schoenberger.

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