By Mark Xu
Sector Lead for Advanced Manufacturing and Transport (China)
China-Britain Business Council
The Automobile industry is a key focus for CBBC Advanced Manufacturing and Transportation (AMT) team and plays an important role in China’s Made-in-China (MIC) 2025 initiative. Our recent research finds that based on the first quarter performance, growth in both Passenger Vehicle (PV) and Commercial Vehicles (CV) has picked up from 2016. Although February saw a drop in PV sales compared with Jan, this was mainly caused by the Chinese New Year holidays.
PV sales in February performed strongly at 18%, leading to Year-to-date growth of 6%. SUV again led the way in the growth and SUV penetration now stands at 41% compared with 37% in 2016. CV sales also saw substantial growth at 50% and this segment was led by trucks and particularly heavy-duty trucks with 146%. For more detailed analysis on PV and CV sales units, please refer to Table 1 below.
Table 1 – China Auto Sales Analysis for Feb 2017
We believe the reason behind the growth in PV, especially SUVs, is a combination of increasing consumer confidence related partly to real estate property prices in the top tier cities as well as China’s relaxed one-child policy. Historically, the correlation between real estate and auto has always been high (see figures 1 and 2 below for reference). Due to the spillover wealth effect from properties in the top tier cities, we estimate a strong growth in passenger vehicles in China this year and particularly in the luxury and large SUV market. With the introduction of a more relaxed one-child policy back in October 2015, China has witnessed a continued growth in both SUVs and 7-seater vehicles to accommodate the increasing family size. This trend was evident at this year’s Shanghai Auto exhibition which took place between 21st to 28th April. Out of the 1400 car models on show, 40% were SUVs and 7-seater vehicles, which is double the number compared with a few years ago.
Figure 1 – Passenger Vehicle Sales vs. property sales (volume), 3-month moving average
Figure 2 – Passenger Vehicle Sales vs. property sales (value), 3-month moving average
Following a decline in the Chinese economy in 2015 and 2016, the first quarter of 2017 saw a stable improvement in GDP with growth of 6.7%, the highest in six quarters. Improvements in imports and exports, logistics and e-commerce sectors contribute to the increased sales of Commercial Vehicles. Another key driver of the improvement in sales is the implementation of stricter emission standards in China. The upgrades of the older model vehicles to the new National Stage IV and V models contributed greatly to the increased sales in the first quarter of 2017 and the trend looks set to continue for the rest of the year.
CBBC continues to monitor trends in the Auto market and look forward to be involved in events such as the CIAPE (China International Auto Parts Expo) in September, the British Mortorsport Festival in October and the Automechanika Shanghai in November.
For more information on the Auto industry please contact the author, Mark Xu, Sector Lead for Advanced Manufacturing and Transport at the China-Britain Business Council: firstname.lastname@example.org.