A different picture of mainland car sales
At some point this week, the China Automobile Manufacturers Association is expected to announce mainland car sales figures for last year.
The number will be a humdinger. Extrapolating from figures for the first 11 months, we can expect to see whole-year sales of 13.5 million vehicles, up an enormous 44 per cent from 2008.
As the first of the two charts below shows, by far the bulk of last year's sales consisted of ordinary passenger cars. Again projecting from data from the first 11 months of the year, we can confidently estimate that mainland dealers shifted a little over 10 million saloons, hatchbacks and minicars in 2009, an astonishing 51 per cent more than in the previous year.
What's more, many investors anticipate a similarly strong sales performance this year.
With China's per-capita gross domestic product set to top US$3,500 last year, analysts note that the mainland has now entered the wealth bracket in which car sales exploded in other Asian markets including Japan and South Korea.
Car ownership levels may already be relatively high in the rich coastal cities of eastern China, but over the next few years, continued economic growth promises to bring the cost of a small car within the reach of tens of millions of inhabitants of the mainland's second-tier inland cities. With developing consumer finance options set to make cars even more affordable - at the moment, fewer than 20 per cent of car purchases are funded through loans - investors are expecting a sales bonanza for China's carmakers this year.
Those expectations have been reflected in the performance of shares in mainland carmakers listed in Hong Kong. Shares in Geely Automobile Holdings have climbed an astonishing 600 per cent since the beginning of last year, while investors' favourite BYD is up nearly 450 per cent.
And as the second chart below shows, even sector laggards like Denway Motors have outperformed the H-share index on the back of investor enthusiasm for China's car market.
Yet, despite the promising long-term prospects for the mainland car market, investors' expectations for sales growth this year appear unreasonably optimistic.
To get an inkling why, take a look at Thursday's South China Morning Post. On the front page is a photograph of proud policemen parading by their new patrol cars in the city of Taiyuan in Shanxi province. According to the caption, 'their new vehicles were provided by the local government ... to help ensure public security over the New Year holiday'.
Visible in the picture are 207 shiny new patrol cars. But allowing for the angle at which the picture was taken, we can safely assume there were at least 400 in the line-up.
No doubt the police of Taiyuan are a fine, upstanding body of men and women who genuinely need their new squad cars to help them protect and serve the city's 1.8 million inhabitants. But the parade indicates their purchase was primarily a political decision and hints at the extent to which official procurement encouraged by Beijing supported the car market last year, alongside government subsidies and incentives.
Given that the Taiyuan police only took delivery of their new vehicles at the very end of the year, we can assume they were the last in line among local government officials for new cars. If we then assume that other local authorities bought new vehicles in a similar proportion to their districts' populations, we can conclude that extra government purchases accounted for almost 900,000 passenger car sales last year, or a quarter of the year's growth in sales.
Given that those procurement programmes were heavily front-loaded in response to central government instructions to support the vehicle industry, they are unlikely to be repeated this year. And considering that a significant proportion of consumer passenger car purchases were also brought forward in response to government tax incentives that are now being wound back, we should be wary about predicting sales growth of similar magnitude for last year.
In fact, if sales growth were to revert to its long-term trend after the distortions of the past two years, we could expect to see sales of about 10 million passenger cars this year, implying zero growth compared with 2009.
That's probably too pessimistic. Factoring in scaled-down government procurement and a slower expansion of consumer sales, overall sales growth of between 5 per cent and 10 per cent looks more reasonable for this year.
That's not bad, but it's a sharp slowdown from last year and way short of some of the more bullish predictions being touted around the market by over-enthusiastic investors.