The Chinese auto industry has developed incredibly rapidly since China joined the World Trade Organisation in 2001.
However, the sector has still been exposed to the recent economic slowdown. China’s passenger car market has experienced various ups and downs over the years, but 2015 has seen a significant change in direction, with car output and sales slowing dramatically, and imports declining.
Stepping On The Accelerator
Imports of passenger cars into China first started to take off in 2009. On the back of government incentives, domestic auto demand grew rapidly, with total auto sales increasing 45% in 2009, and in 2010 to total 18.1m units. Passenger car imports also saw substantial expansion in this period, rising from 0.4m cars in 2008 to 0.8m cars in 2010.
Traffic Lights Turn To Yellow
However, the pace of growth in Chinese auto sales moderated further in 2011, and with imports recording another strong year of expansion (topping 1 million cars in 2011), inventory levels built up. This led to a drop in car imports in 2H 2012 and 1H 2013, with total volumes in this period down 10% on the previous twelve months. However, growth in passenger car sales picked up again in 2013 to 14%, and remained firm at 12% in 2014, helping to drive a strong recovery in imports to 1.4m cars in 2014, accounting for around 5% of global seaborne car imports. Overall, this growth has been driven from a broad base. US, German and Japanese exports have dominated Chinese imports, with volumes from all three expanding in 2009-14 to account for more than 60% of China’s car imports in 2014, while imports from other countries including the United Kingdom and Mexico have also shown rapid growth.
Traffic Jam Builds
However, 2015 has seen some pronounced shifts in the Chinese auto market. Car imports have plummeted, falling 24% y-o-y to 0.5m units in 1H 2015. Slowing economic growth has subdued auto demand for much of this year, with y-o-y growth in passenger car sales slowing to 5% in 1H 2015, and to 2% in Q3.
Imports have been further limited by greater competition with domestically produced cars. Chinese brands have expanded their market share this year, recording a 12% y-o-y increase in car sales in January-September. Joint-venture brands still account for 60% of Chinese car sales, and continue to offer consumers more favourable prices and taxes, as well as lower vehicle maintenance costs in comparison to imported vehicles.
The Chinese car market now seems to be at a crossroads. Following the temporary halving of the sales tax on small vehicles in September, car sales have picked up significantly (rising 18% y-o-y in November). However, there are questions over the sustainability of this recovery, and over whether stronger sales can translate into firmer imports given greater competition with domestically produced cars. While demand for luxury cars and greener models may provide some support to imports, the car sector appears to have been another area of Chinese trade subject to a fundamental shift this year.