Analysts Indicate That Low Ownership Rates, Government Subsidies May Spur Faster Growth Of World’s Largest Auto Market
From the recent Shanghai Auto Show to news that the Chinese government plans to offer higher subsidies for consumers trading in old vehicles for new ones, China’s auto market has been a busy place in recent months. With the sluggish performance of carmakers in more developed global markets, the news that auto shares in China — currently the world’s biggest car market — are expected to outperform this year will, in many ways, comfort global auto companies.
However, as we have previously discussed, the news that Chinese car buyers are growing rapidly as a consumer base shouldn’t be enough for foreign automakers — as domestic brands like BYD, Geely, Chery and others vie for dominance in this rapidly-changing market, foreign automakers will have to invest heavily if they are to keep the lead they have built in the last 10-20 years.
MarketWatch ran a story yesterday that pointed out many of the opportunities — and difficulties — that exist in this vast and evolving market. Although Chinese consumers are buying more vehicles, many for the first time, it is no cause for naive optimism. Nonetheless, as with other quickly-expanding markets in Greater China, for everything from jewelry to wine to contemporary art and luxury products, the buying habits of the Chinese consumer are under the microscope. As the world looks for the emerging world to spur global economic growth, what happens in China’s auto market in the next few years is likely to have a ripple effect in the global auto market.
V. Phani Kumar writes on the current, and expected, state of the Chinese auto market:
“[While] other major markets shrink in size, China is seeing the largest growth in the auto market. We believe the Chinese auto sector’s fundamentals are improving,” BNP Paribas analyst Jack Yeung wrote in a recent report.
“In the short-term we believe demand for auto sales should further improve, given the Chinese government’s continuous policy support toward auto sector. In the long term, we believe small cars as well as light trucks will be the champion of the Chinese auto market,” Yeung said.
Chinese automobile sales touched a record high of 1.153 million units in April, rising 25% from April of last year, data from the China Association of Automobile Manufacturers showed earlier this month. Domestic sales in March were 1.11 million units, again a record, according to Chinese state media.
“Relatively low auto ownership in less developed regions and the kick-start of domestic consumption growth served as the base for incremental demand, while gradual recovery of consumer spending in the Pearl River and Yangtze River delta areas helped boost the auto market,” Citic Securities analysts wrote in a note to clients.
“We believe the worst is over for the industry, and that [first half results] could surprise on the upside,” they wrote.
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