China autos rebound takes hold with strong first-half sales

Vehicle sales in China rose 8.1 percent in the first half of the year, the automakers association said on Monday, well ahead of full-year predictions with the industry cautiously optimistic that positive sales momentum will continue.

Vehicle sales growth in the world’s largest auto market stalled last year as the Chinese economy slowed before rebounding strongly in October thanks to a tax cut on small engine cars.

Many industry watchers questioned whether the rebound could be sustained, but analysts say sales so far this year have met or exceeded expectations.

“People are cautiously optimistic,” said Godfrey Tsang, a consultant and former vice president for Lexus China.

Sales grew 14.6 percent in June, the China Association of Automobile Manufacturers told reporters, the highest monthly growth since December 2015.

Reflecting the strong start to the year, LMC Automotive last month raised its prediction for annual growth by 0.4 percentage points to 8 percent year-on-year growth in passenger vehicle sales for 2016.

But other indicators show pressure remains high on dealers. An index produced by the China Automotive Dealers Association to measure inventories sits at the highest level since November last year.

Dealers are continuing to deepen discounts to remain competitive with the average discount of up to 3 percentage points higher in the first six months compared with the same period in 2015, according to Chinese consultancy WAYS.

TAX CUT EXPIRY

Analysts said the main uncertainty hanging over the market was whether the tax cut on cars with engines under 1.6 liters would expire at the end of the year or be extended.

If it expires as expected, consumers may rush to buy cars this year to cash in on the incentive, at the expense of next year’s sales, while extending the cut would push down fourth-quarter sales.

Ye Shengji, deputy secretary general for the automakers association, said last month that the association was in favor of making the tax cut permanent to promote more fuel efficient cars.

But with China’s real estate market rebounding, the government will be less likely to turn to car sales incentives to push up GDP growth, said James Chao, Asia-Pacific chief for IHS Automotive.

Presuming the tax cut expires, IHS predicts sales growth will fall to 1.4 percent next year.

Source: Reuters