Is China’s Auto Market Difficult to Recover a Two-Digit Growth in 2016?

It seems that the automobile market trend has been settling down this year. “The automobile market’s growth rate should be about 3% in 2015.” Dong Yang, Vice Chairman and General Secretary of China Association of Automobile Manufactures (CAAM) told reporters on the monthly CAAM press conference held on 10 December. Xu Changming, Director of the Resources Development Department of the State Information Center also believes that, “The V-shape trend is obvious. The trend went down before July and went up after August. This is the most significant feature of our automobile market this year.”

Currently, professionals including automobile enterprises and dealers are paying more attention on the market’s development in 2016. There are two different opinions on whether the market could revive under the incentive of vehicle purchase tax halving benefits for vehicles with displacement less than 1.6L.

One optimistic opinion, represented by Xu Changming, believes that the automobile market will revive to a growth rate 1.3 times of the GDP growth rate in 2016 and the future period, which means that the passenger car market may achieve a two-digit growth in the next year. His prediction is made based on developed countries’ experience, which shows that a country’s automobile market will experience two phrases of rapid growth. The first phrase lasts about five years with a sales growth rate of 30%. The second phrase lasts about ten years with a growth rate of 20%. The first rapid growth period for the Chinese automobile market is from 2001 to 2008, with an average sales growth rate of 30.4%. The second phrase starts from 2009 for China, and the growth rate is about 1.3 times of GDP growth rate. Xu Changming believes that this is the long-term trend of the Chinese automobile market. Based on the growth rate, China’s passenger car sales volume will reach 36.8m units by the end of the second phrase, with an overall sales volume of 40m units.

His estimation is made as this: A nation’s total vehicle number is determined by the number of vehicles per 1000 people, which is determined by the population density. He takes Japan as an example, which has a population density of 1,113 people per square kilometer, four times of China, and the number of vehicles per 1000 people is 589 units. Calculated by 400 vehicles per 1000 people, China’s saturation point for vehicle sales is 40m units.

Different from opinion, Dong Yang holds the view that production and sales growth will be the same as GDP’s growth. “China already has a large annual production and sales size of 24m units. The future two-digit growth will put pressure on domestic environment and transportation.” Therefore, he predicts that the growth will be 5%-7% in the next year.

Dongyang’s opinion is agreed by several automobile enterprises. Zhu Huarong, President of Changan Motor told reporters that, “The automobile industry is developing on a good trend. It’s estimated that the market growth will be 5%-7% for the whole next year. It’s possible that some months can reach a 10%-15% growth, but an annual 15% growth rate is exaggerated.”

Xu Changming’s prediction has another hypothesis that the government will carry out favorable policies towards the automobile market. Bloomberg cited an unknown insider’s words on 9 December that, China plans to start a new round of Automobile Subsidy Program. Passenger vehicles with displacement less than 1.6L, mini-carries and pickup trucks are allincluded in the program. Stimulated by the news, automobile companies’ stocks all rise greatly on that day.

However, Dong Yang denied the possibility of issuing the policy. He told reporters that, “Several days ago I attended an informal discussion meeting on the national economy held by the State Council, and I have not heard any news of starting a new round of automobile subsidy program.”