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Eric Zhou needs a car, and he plans to buy one – despite the global financial crisis.
Mr Zhou, a 36-year-old engineer working in Shanghai, is typical of millions of consumers who are keeping the Chinese auto market relatively buoyant
as the Chinese economy is slowing and sectors from property to steel are suffering from tighter credit.
Mr Zhou says he and his wife “didn’t consider the financial crisis” when they decided to buy a car to take their son to school. “In fact, we don’t feel the financial crisis is causing any impact on our lives at all,” he said.
The same cannot be said of China’s total automotive market – the world’s largest – which is slowing, partly due to credit tightening moves by the central government. Sales of Mini commercial vehicle – small vans used largely for business – are down 5 per cent year-on-year in the first 10 months of 2011 and manufacturers are feeling the strain.
The story for passenger cars is very different. They remain resilient even after the withdrawal of tax incentives to buy small cars.
Car sales increased by 6 per cent year-on-year in the first 10 months of the year, and a recent consumer survey showed continuing strong demand for cars, especially at the higher end of the market.
Mercedes-Benz’s sales have risen 36 per cent this year, and General Motors’ sales last month increased 10 per cent year-on-year, although GM had to slash prices on its mini commercial vehicles.
This year’s 6 per cent increase in car sales, however, looks anaemic compared with the past couple of years: passenger car sales rose 53 per cent in 2009 and 33 per cent in 2010.
In the west, such a dramatic decline in sales would be seen as very bad news for the overall economy. But in China, auto market executives, industry analysts and ordinary consumers tell a different story.
“Last year’s market was on steroids, driven by subsidies, but this year the government is trying to wean the market off those drugs,” says Bill Russo, head of Synergistics auto consultancy in Beijing and former head of Chrysler in China.
Early in 2009, Beijing introduced tax incentives for small cars, as part of a broader economic stimulus package that inflated car sales in 2009 and 2010. The tax cuts were withdrawn this year. As a result, the China Association of Automobile Manufacturers (CAAM) recently forecast total vehicle sales would rise by less than 5 per cent this year.
Mr Russo says that is not bad news for the Chinese car market: “I don’t think car sales are signalling that the fundamentals are weak at all. If anything, it is the opposite: 4 or 5 per cent growth coming on top of a blowout year last year is pretty solid,” he says.
Passenger cars, one component of total vehicle sales, could grow even more strongly, by 10 or 11 per cent this year, says Klaus Paur of Synovate, a Shanghai auto consultancy. “The fact that we had two tremendous years of growth has blurred our view of reality. The reality is we still have a growing market, just at a higher level,” he says.
Chinese consumers are much less affected by the pessimism that has beset shoppers in other countries. According to the latest annual survey of Chinese consumers by McKinsey, they are more optimistic than last year: 58 per cent think their income will rise in the next year compared with 39 per cent in 2010.
Shaun Rein, whose firm China Market Research Group interviewed 300 consumers in eight cities recently about their car purchasing plans, says “the economy is not stopping them from buying”.
As Dan Akerson, GM chief executive, said in Shanghai earlier this month: “You can’t have totally unbridled growth in a country evolving as quickly as China.” He predicted 7-10 per cent market growth this year, adding: “I think that’s very healthy.”
Additional reporting by Shirley Chen in Shanghai