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China car sales to slow as stimulus draws to close

Car sales in China are forecast to slow sharply this year as stimulus measures designed to boost demand are set to end.

Sales are expected to increase 5 per cent in 2017, a significant drop from growth of 13.7 per cent last year, which was the fastest rate since 2013 despite a broader economic slowdown.

Growth in 2016 exceeded expectations due to tax incentives on smaller vehicles, which China’s Ministry of Finance has confirmed will be phased out by 2018.

The government’s purchase tax incentive, which halved tax on vehicles with engines smaller than 1.6 litres, will be scaled back this year with tax rates returning to the full 10 per cent rate by 2018.

The China Association of Automobile Manufacturers said strong demand from people aged between 25 and 35 in the country’s smaller cities were the backbone of China’s car sales, which last year grew to 28m.

Strong demand, particularly in the smaller cities, reflects the recovery of consumer confidence as economic growth stabilised at 6.7 per cent, said Cui Dongshu, secretary-general of the China Passenger Car Association. He added that a boom in property prices has made buyers less cautious about spending on big-ticket items. 

One big winner last year was domestic Chinese car brands, which surpassed the 10m yearly sales threshold for the first time ever, outpacing the overall market and growing at a rate of more than 20 per cent in 2016. 

Overall, carmakers have seen the product mix change in China as demand for sedans fall while the fastest growth segment in the car industry is in SUVs, which grew at 44.6 per cent last year. 

New energy vehicle sales also saw strong growth with sales at 507,000 in 2016, an increase of 53 per cent. 

Xu Haidon, assistant to secretary-general of CAAM, told a press conference on Thursday that Chinese consumers continued to have a “rigid” demand for cars, particularly in the smallest cities that are experiencing growth in income.

He also tied the demand in cars to the continued boom in property prices. “Under the current macro economy, market capital is abundant and the increase in real estate development will drive up car consumption,” he said.

Via FT