China's automobile industry picks up steam

China's automobile industry, a sector once hit hard by the COVID-19 epidemic, is back on track as increasing demand and strengthening incentives push positive market growth.

CAR SALES BOUNCING BACK

China's automobile market, which was hard-hit by the COVID-19 epidemic, started to recover in April, thanks to unleashed pent-up demand and encouraging policies, with sales rising by 4.4 percent year-on-year. This ended a contraction streak over the past 21 months, according to the China Association of Automobile Manufacturers (CAAM).

In May, the year-on-year growth in output and sales was 15.9 percentage points and 10.1 percentage points higher than those registered in April, respectively, CAAM data showed.

Total output reached 2.19 million units in May, up 18.2 percent year-on-year, while sales hit 2.19 million units, up 14.5 percent from the same period last year.

Bucking the downward trend in yearly growth, retail sales of passenger vehicles registered a 1.8-percent yearly growth to 1.61 million units in May, in sharp contrast with the steep declines by 20 percent, 78 percent and 40 percent, respectively, in the first three months of the year, data from the China Passenger Car Association (CPCA) showed.

China's car market has great potential for development, as the demand for car purchasing is still strong, said Gao Feng, a spokesperson with the Ministry of Commerce, noting that the market will maintain a steady recovery, as policies assisting enterprises will be further implemented.

INCENTIVES STRENGTHENED IN BOOSTING CONSUMPTION

All levels of government have offered multi-pronged assistance to boost the recovery of the auto market. In April, 11 central departments jointly issued a circular, urging efforts to increase support for personal auto consumption credit. It also urged the further release of auto consumption potential by appropriately lowering the down-payment ratio and loan interest rate as well as extending the repayment period.

Purchase restrictions were loosened at the local level with new quotas added in a batch of cities. For example, 12.1 percent of applicants for license plates of private non-operating vehicles in Shanghai were assigned one in May, a record high in six years as the rate ranged from 4 percent to 7 percent in recent years. Beijing also plans to increase 20,000 new-energy vehicle (NEV) quotas this year to families without cars.

Local authorities also introduced other incentives to boost auto consumption, such as granting subsidies to car buyers, encouraging sales expansion in rural areas as well as supporting the promotion of used cars.

Existing local policies are estimated to drive 790,000 passenger car sales in 2020, accounting for 3.5 percent of passenger car sales last year, while potential policies are expected to drive the sales of another 370,000 cars, according to a research report released by Industrial Securities.

China underlined its determination to shore up the NEV industry in its government work report this year. To stimulate NEV consumption, the government extended subsidies and tax exemptions for NEV purchases by another two years, which were set to expire at the end of the year.

In five to eight years, NEVs are expected to keep pace with fuel vehicles in terms of competitiveness, said Fang Yunzhou, president of the Hozon New Energy Automobile Co Ltd, noting that NEV firms should enhance research and development in intelligent technology, innovate marketing modes and strengthen cooperation among industrial chains.

KEEPING UP WITH FRESH DEMANDS, BUSINESS MODES

Besides dampening the auto industry for a period, the epidemic also ironically spurred new demand for the industry, as consumers realized the importance of owning private cars. Nearly half of interviewees, having had no plans of purchasing cars before the outbreak of COVID-19, said they might or were going to buy cars, according to a survey conducted by market information service provider JD Power.

Amid further COVID-19 containment, schools across the country are resuming classes, thereby unleashing growing demand from families, said the CPCA. Rising demand for cars was therefore expected as people's enthusiasm for starting their own businesses was spurred by the country's favorable policies.

The market saw quick rebounds of demand for luxury cars based on car-owners' interest in high-end products in consumption upgrades. Retail sales of luxury cars rose 16 percent and 28 percent year-on-year respectively in April and May, according to the CPCA.

Low-end passenger cars also gained popularity among certain consumers, with families needing a car as a necessity. First-time buyers especially showed greater interest in cars worth around 100,000 yuan (about $14,111), said Xu Xin, a car dealer in Ningbo, Zhejiang province.

From January 2020, most potential customers for these kinds of cars were aged 20 to 40, said Xie Xiaobo, a car dealer in Hangzhou, the provincial capital of Zhejiang. Besides cost performance, young consumers value private enjoyment in commuting, a variety of product functions, and the concept of design when purchasing cars, said Zhao Chaoyue with FAW-Volkswagen Automobile Co Ltd.

To better reach customers amid the epidemic, the industry explored new sales modes, such as online car displays with the support of high technology and live streaming shows. In April, an online automobile exhibition, showing vehicles of over 60 brands, attracted more than 91 million visitors in 20 days, with estimated total transactions reaching around 1.99 billion yuan.

Foreign investors are optimistic about the future of China's auto industry. German carmaker Volkswagen has announced plans to invest 2.1 billion euros in China to develop its electric vehicle business in the country, while Tang Jin, senior research analyst at Mizuho Bank noted that China's vast market and profound auto industry chains will encourage Japanese companies to enlarge investment rather than leaving the country.