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      Economy

      Chinese car market changes gear in decelerating economy

      1
      2015-09-16 14:05Xinhua Editor: Mo Hong'e

      China's passenger vehicle (PV) market is entering a new phase with annual sales volume growth set to slow to single digits over the next decade, according to a report released by Fitch Ratings on Wednesday.

      China's domestic automakers, both joint ventures (JV) with foreign companies and indigenous brands, will face intensifying competition in the world's biggest PV market, with product, pricing and marketing strategies becoming increasingly important differentiating factors, Fitch said.

      The ratings agency believes the industry will settle into a new gear as demand slows in top-tier cities, the market matures and China sees a shift in regulatory focus from short-term consumer stimulus to new-energy vehicle (NEV) development and restrictions to contain vehicle numbers in more Chinese cities for environmental reasons.

      With driverless technology and the government's "Internet Plus" strategy of integrating the Internet with traditional businesses also playing their part to reshape the sector, carmakers will face increasing pressure to maintain profitability, said Qu Guochun, a senior Ministry of Industry and Information Technology (MIIT) official at an industrial forum.

      China's auto industry is facing challenges due to lack of capability in core part manufacturing and developing high-end technology, and its weak industrial chain, said Zhu Hongren, former chief engineer of the MIIT.

      The country's auto industry grew by an annual average of about 24 percent between 2000 and 2010, but the growth rate declined to about 7 percent between 2010 and 2014.

      In the first eight months of 2015, both production and sales dropped slightly from a year earlier, as the economy slows and purchase restriction policies begin to bite in major cities.

      However, Fitch pointed out that the market's long-term drivers will remain. Urbanization, rising household income and improving highway infrastructure will all fuel growing demand for car ownership and existing drivers upgrading to better vehicles.

      Sales of Chinese-brand passenger vehicles saw a brisk growth of 12.2 percent in the first eight months, accounting for 41 percent of total passenger car sales, up 3.5 percentage points from a year ago, according to the China Association of Automobile Manufacturers (CAAM).

      China's PV density, currently around 80 vehicles per 1,000 people, could rise to around 150-200 in the next two decades, said Fitch.

      On the regulatory front, the government has introduced stricter vehicle emission standards and pro-NEV policies to combat air pollution, offering growth opportunities for greener vehicles produced by Chinese firms.

      New energy vehicle production increased by 260 percent and sales by 270 percent from January to August, as the government promotes their use with subsidies and tax cuts, CAAM figures showed.

      Fitch expects demand from top-tier cities to be mainly from consumers replacing vehicles and upgrading to pricier ones, while competition will intensify in lower-tier cities and most of their demand will be for mass-market models that target first-time, entry-level buyers.

      Large state-owned automakers are likely to maintain their market leadership with their diversified portfolios of JV brands, though the ongoing anti-monopoly investigations into foreign makers could put downward pressure on the pricing of overseas brands. This will intensify competition for Chinese brands already at the cheaper end of the product spectrum, according to the report.

       

        

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