The Chinese auto market is having it’s own version of a “cash for clunkers” moment. After artificially pulling sales forward for all of 2016 with a purchase tax that was cut in half from 10% to 5%, the Chinese auto market is now suffering the consequences of removing that stimulus. As Reuters notes, Chinese auto sales have declined sharply so far in 2017 with April and May registering the first consecutive monthly declines since 2015.
Chinese auto sales slipped in May from a year ago, registering two straight months of declines for the first time since 2015, with the automakers’ association saying the weakness may drag on as the rollback of a tax incentive continues to hurt.
The world’s biggest auto market got a shot in the arm in 2016, growing at its fastest pace in three years, after Beijing halved the purchase tax on smaller-engined vehicles. But buyers have shied away since taxes climbed to 7.5 percent, from 5 percent, at the start of this year.
Auto sales in China fell 0.1 percent in May from a year ago to 2.1 million vehicles, China Association of Automobile Manufacturers (CAAM) said on Monday. In April, sales recorded their steepest fall in 20 months.
Of course, for those of old enough to remember 2009, the U.S. auto market had it’s own, albeit short-lived, experience with massive government subsidies for auto purchases.Unfortunately, sales crashed as soon as the stimulus was removed.
Meanwhile, as China Association of Automobile Manufacturers spokesman Xu Haidong notes, the downturn in China is probably far from over given that auto purchases taxes will increase again in 2018 back to their original 10%.
The current downturn in China’s auto market could extend through July or August, said Xu Haidong, a CAAM spokesman.
“Last year was just too strong and now the policy impact is fading away,” said Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight. “The growth (last year) overdrew some of the demand.”
China’s auto market recorded a 13.7 percent rise in sales last year, helped by the tax incentive. The purchase tax on vehicles with engines of 1.6 litres or below will rise to the normal 10 percent next year.
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