Have Chinese Car Sales Hit Their Peak?

July 10, 2008
Brilliance Auto

Brilliance Auto

Spend even a few days in the boomtowns of Shanghai and Beijing, and it's hard not to get caught up in the enthusiasm that has long dominated the Chinese automotive market. From a decade of personal experience, I have watched China rapidly evolve from a country of bicycles and motor scooters to one of the world's largest car markets, where owning a vehicle is a must for the increasingly affluent middle class, as well as business and government leaders.

Only a few months back, during my last visit behind the old Bamboo Curtain, many analysts were breathlessly forecasting that China, which has now surpassed all but the U.S. and Japanese national markets, would become the single largest car-buying nation by 2025. Or will it? Maybe not, suggests a story in the Financial Times.

The paper notes that for the first six months of this year, Chinese car sales rose a solid 14 percent. Considering the huge slump in the U.S. market, that seems pretty substantial, but not when you consider recent trends. Over the last decade, China has seen annual growth rates that, at times, have nudged triple digits. But in 2006, that slowed to a still-impressive 34 percent. And last year, the increase was just 24 percent.

While some analysts are still predicting 20 percent growth for all of 2008, others, says the FT, fear it will dip to 15 percent and "might be at a turning point."

As in the U.S., the paper suggests there is a "perfect storm of negative factors" affecting the Chinese market, including rising prices for steel and other raw materials. It didn't help when the government approved an unanticipated increase in gasoline prices last month. At worst, some observers thought that might happen after the upcoming Olympics.

There could be a significant "pause," warns John Bonnell, director of Asia Pacific forecasting for J.D. Power and Associates, who told the paper, "It's impossible to predict the impact of the global slowdown on China or on (its) auto industry."

While rising fuel prices are a hard pill to swallow for Chinese consumers - impacting them far more, in terms of overall income, than their American counterparts - that's offset by the steady decline in vehicle prices, reflecting rising competition and the increased capacity of manufacturers operating in China.

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