China Car Sales Slow in February

While car sales in the United States increased by a sizzling 27 percent in February, China’s auto industry managed to eke out only a single-digit increase, a rare occurrence in China’s auto industry. According to Kate Zhu, auto analyst for Morgan Stanley Asia Ltd., passenger vehicle sales totaled 772,441 units in February, up 7.4 percent from sales last February, the first time since March 2009 that the China auto market saw growth in only single digits. Compared to January, car sales were down by 39.4 percent.

February’s poor sales performance calls into question the rate at which China’s auto industry is likely to grow for the entire year of 2011. Rao Da, Secretary-General of the China Passenger Car Association, said “the stagnancy of the automobile market in February is reasonable, but it will lead to a downtrend in the coming months.” He warned against “being optimistic about whole year sales in 2011,” predicting the possibility of the first negative annual growth in 25 years.

On the other hand, Lin Huaibin, the manager responsible for China vehicle sales forecasts for IHS Automotive, a leading independent consulting firm, still expects the market to grow by 10 percent in 2011, stimulated by subsidies for fuel-efficient vehicles as well as the more than 9.5 percent GDP growth forecast by the IHS economist.

For my money, I agree with Mr. Lin. It’s impossible to draw any conclusions for full-year growth based on sales in February. Depending upon when Spring Festival falls in China, sales in either January or February are distorted, and in some years, sales in both months are impacted. For large-ticket purchases like autos, we will need to see how sales in the coming months play out to form any hard and fast conclusions about the year as a whole.

When making year-on-year comparisons, it’s also useful to bear in mind that China’s passenger car sales grew by 34.7 percent in 2010. This rate is clearly unsustainable, particularly for an auto industry that is now as large as the one in China. On a longer term basis, the auto market can be expected to grow at roughly the rate of growth of China’s GDP. That’s not bad considering that China’s GDP is likely to grow by between 8 and 10 percent for the foreseeable future.

In China, a rapidly rising tide has tended to lift all boats in recent years. However, the real test will come as the markets in China mature, and growth slows to rates that would be considered robust in most other economies of the world.

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