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Chinese auto market braces for speed hump

Hao Yan
Updated: Dec 25,2017 9:39 AM     China Daily

The growth of China’s auto market growth is set to slow down to a six-year low, and industry experts predict more sluggish times in 2018, with carmakers needing to make adjustments for a change of course in the sector toward high-quality development.

The China Association of Automobile Manufacturers, or CAAM, said it expects total new vehicle sales volume to reach 29 million units by the end of 2017, for an annual growth rate of 3.5 percent year-on-year.

That’s lower than the 5-percent prediction the association made at the start of the year, but confirmed an earlier China Daily report that the picture would be less rosy.

The association announced that the year-to-date vehicle sales volume reached 25.9 million units in the first 11 months of the current year, up 3.6 percent on the same period in 2016.

More than 700,000 new energy vehicles are set to be delivered by the end of the year, and the commercial vehicle market is set to experience double digit growth. According to Fu Yuwu, president of the Society of Automotive Engineers of China, speaking at the World’s Top 10 Transmission Award ceremony organized by CarBingo in Beijing on Dec 17, some compact cars carrying Chinese brand names achieved volume of 200,000 units.

John Zeng, managing director of LMC Automotive Shanghai, found the nation’s vehicle retail sales began to grow again in October, reversing the overall downward trend in the months of November and December.

CAAM Deputy Secretary-General Shi Jianhua said at the ceremony that the purchase tax deduction policy had overdrawn the customers’ purchasing power in 2016, and “the impact was stronger than expected”.

China began the purchase tax deduction from Oct 1, 2015 to accelerate the auto market expansion.

The purchase tax was halved to 5 percent of the car prices for buyers who purchase vehicles powered by an engine of 1.6-liter or smaller.

The favorable taxation policy stimulated six-year high growth of 13.7 percent in 2016, with total sales of 28 million units.

The purchase tax for those vehicles increased to 7.5 percent from Jan 1, 2017, and the deduction will come to an end by the end of 2017.

All buyers will pay a full 10 percent purchase tax from Jan 1, 2018, prompting industry experts to agree that the industry will now switch lanes and go into a moderate development phase.

Shi said the Chinese auto market’s growth would expand at 3 percent, for total sales of 29.8 million units next year.

He said that in the current year the industry had reached such a huge size that whether growth came in at 3,4 or even 5 percent was not in itself significant.

“Even zero growth would not be a bad result: after all, the Chinese market contributed about one of third new car sales in the world,” Shi said at the World’s Top 10 Transmissions Award ceremony.

CarBingo organized the awards, the first and the only one of its kind in the world, and 28 mass-produced vehicles and transmissions participated.

High-quality development

“Our auto industry is going to grow slowly but steadily, and switch the focus from the sales quantity to high-quality development,” said CAAM’s Shi.

“What our automotive industry needs to seek is an approach of developing stronger, instead of bigger.”

The Society of Automotive Engineers of China’s Fu said it is not bad for a 30 million unit market to expand, but it is now going to pursue qualitative growth.

LMC Automotive’s Zeng shared his views on the need for high-quality development of the automobile industry. He said that the mainstream product portfolios would undergo an upgrade and the low-end market would shrink, while maintaining stock levels at a reasonable level.

“Next year will open a gateway for Chinese auto makers to develop toward more premium positions. The market is going to be versatile, heading toward high-quality development,” Zeng added. He said he was happy to see Geely Automobile and Great Wall Motor launching premium Link & Co and Wey respectively this year, to prepare for high-quality developments in the future.

But Zeng added that he believed Chinese carmakers needed to succeed with at least two generations of models, to consolidate their premium position in the local automobile industry.

“Their high-quality development deserves no shorter than a decade of devotion,” he said.

“In case of failure in the second generation of new models, they will return to the starting point, even if the first generation wins the market.” he added.

CAAM’s Shi said the Chinese automotive industry and its carmakers used to attach great importance to the development of the vehicle products, but now that concept needed refinement.

“Stronger auto parts suppliers make automakers stronger; and stronger automakers make the auto industry stronger,” said Shi.

He suggested that the transmission sector deserved a higher priority in the development of auto parts.