End of the road for Chinese growth
Several major auto manufacturers, including Honda and Nissan, are downgrading their Chinese sales growth forecasts for this year, while General Motors (GM) recently posted its slowest monthly pace of sales growth in China for over a year and a half.BMW's chief executive, Norbert Reithofer, believes the slowdown marks the beginning of China's transformation into a mature auto market, effectively spelling an end to high double-digit growth rates.
The news is not all bad. The Chinese government has published plans in May of this year to introduce stricter emissions targets over the next two years.Company sales figures for the month of October suggest this slowdown has continued. GM recently reported sales growth of 3.2% year on year in October, to 291,371 units, its slowest growth rate in 20 months. Sales of the company's Wuling-brand vehicles, which make up around one-half of GM's total vehicle sales in the country, were the main drag on overall sales growth, falling by 10% year on year to 121,540 units.
At Honda, meanwhile, car sales fell for the fourth consecutive month in October, by 5.8% year on year, to 70,802 units. September was an even more painful month for the Japanese carmaker, with sales falling by 23% year on year. Nissan is also suffering: its China sales fell by 12% year on year in the third quarter of this year, to 259,000 units, while October sales fell by 9% year on year, to 104,400 units.
If that happens, it means that Nissan's sales for 2014 will not have grown at all compared with 2013. The Economist Intelligence Unit's forecast for the total market this year is less gloomy. We expect China to end the year with sales growth of 8.9%, which would bring total car sales to another record of 19.5m. Even so, that is not much more than half the growth rate of last year.
Long- and short-term factors
That the Chinese car market is struggling is unsurprising. An economic slowdown in China has been coupled with the effect of weakening currencies in markets such as South America and Russia. Along with escalating real-estate prices, eating into consumers' income, this is dampening consumer demand.There are longer term factors at play, too. Less bullish GDP growth prospects over the coming years are partly driven by a fall in the country's working-age population and a shift in manufacturing to lower-wage countries such as Mexico. They also reflect the government's drive to rebalance an economy, whose growth has been fuelled by a high rate of credit growth.
The Chinese government is being pressed into action over the resulting health, lifestyle and business problems. Licence plate quotas and other restrictions are already in place in six Chinese cities.The news is not all bad. The Chinese government has published plans in May of this year to introduce stricter emissions targets over the next two years. That could result in up to 6m vehicles that do not meet these targets being taken off Chinese roads by the end of this year, which could support demand into next year.
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