Subsidy cut puts brakes booming on car sales

China's passenger vehicle sales last year saw their fastest growth since 2013, but analysts say the momentum will not continue this year.

Statistics from the China Passenger Car Association showed that dealers sold 23.9 million sedans, SUVs and MPVs in 2016, a 15.9 percent rise year-on-year, more than double the estimates of several industry organizations, including the China Association of Automobile Manufacturers, made at the start of the year.

Cui Dongshu, secretary-general of the CPCA, says the performance was mainly due to a 50 percent tax cut on cars with engines no larger than 1.6 liters, and Chinese motorists' enthusiasm for SUVs.

The role of the tax cut was particularly obvious in December, which saw the year's highest monthly sales of 2.76 million cars as people rushed to dealerships before the policy expired by the end of the year.

Yale Zhang, managing director of research firm Automotive Foresight, says: "The policy was like a huge roadside billboard for the car industry, constantly reminding people that there are some models they should consider buying."

Despite the authorities putting in place a 25 percent tax cut for this year, this will still mean that customers have to pay an extra 5,000 yuan ($710; 673 euros; 583) for models priced at around 200,000 yuan, such as the Volkswagen Sagitar or Toyota Camry.

SUV sales grew 43.6 percent year-on-year in 2016, the fastest-growing segment in the market. One example of their popularity was that Great Wall Motor Co Ltd sold 80,495 Haval H6 SUVs in December, which means one was sold in every 33 seconds. More than 580,000 H6 were sold in the year.

But experts say that the growth rate will plummet now that a huge number of customers have finished purchases in advance and overall economic growth is somewhat slowing down.

Cui expects the figure to fall to around 6.5 percent in 2017 while Zhang and John Zeng, managing director of LMC Automotive Consulting (Shanghai), give an even less optimistic estimate of 2 to 3 percent for the year.

Zeng says the market would see negative growth without the 25 percent tax cut on small engine cars that took effect this month.

However, Zeng is against too much stimulus, insisting that the market should have the final say.

He says the favorable policies are like athletes using drugs that produce abnormally high but unsustainable performances.

lifusheng@chinadaily.com.cn

(China Daily European Weekly 01/13/2017 page25)