More Chinese cities to limit car purchases to fight pollution

More cities to introduce restrictions on purchases, says China Association of Automobile Manufacturers

PUBLISHED : Thursday, 11 July, 2013, 12:00am
UPDATED : Thursday, 11 July, 2013, 4:19am

China is poised to widen the number of cities curbing vehicle purchases to counter worsening pollution and congestion, which would undermine car deliveries, the nation's biggest car association said.

Eight cities - Chengdu, Chongqing, Hangzhou, Qingdao, Shenzhen, Shijiazhuang, Tianjin and Wuhan - would probably introduce measures limiting car purchases, Shi Jianhua, deputy secretary general of the China Association of Automobile Manufacturers, said yesterday. The state-backed group was opposed to the restrictions, Shi said.

A lot of dealers are urged to clean the inventory of the old models. That's why they give a little bit bigger discounts to drive the sales
Vivien Chan, analyst at Oriental Patron Holdings

Such limitations could cut vehicle deliveries by 400,000 units, or 2 per cent of nationwide sales, and undermine economic growth, Shi said. If introduced, the measures may triple the number of Chinese cities - Beijing and Shanghai have vehicle quotas - imposing curbs on cars as public anger grows over worsening congestion and air pollution.

Shijiazhuang, one of the mainland's most polluted cities, proposed limiting vehicle ownership through a lottery, according to a Shijiazhuang Daily report on the local government's website last month.

The eastern province of Zhejiang held discussions last month to limit the number of new vehicles in the provincial capital of Hangzhou and Xian discussed limiting vehicle ownership last year.

Meanwhile, passenger-vehicle sales rose 9.3 per cent in June after dealers increased discounts to clear stock and meet half-year targets amid a cash crunch and concerns the economy is slowing.

Wholesale deliveries of cars, multi-purpose and sport utility vehicles climbed to 1.4 million units last month from 1.28 million units a year earlier, the association said.

"A lot of dealers are urged to clean the inventory of the old models," said Vivien Chan, a Hong Kong-based analyst at Oriental Patron Holdings. "That's why they give a little bit bigger discounts to drive the sales."

General Motors broke ground on a new Cadillac factory in China last month, while Ford Motor and PSA Peugeot Citroen opened new assembly plants, as foreign carmakers expand production in the world's largest vehicle market.

Demand is coming from first-time buyers in smaller cities, where incomes are rising rapidly, according to Jeff Chung, a Hong Kong-based automotive analyst at Daiwa Securities.

Still, vehicle sales may slow as the economy slows, the cash crunch spreads to car dealerships and banks become more stringent in approving car loans.

The money-market squeeze, which sent interbank borrowing costs to a record last month, has led to "psychological panic among dealers over access to financing", said Luo Lei, deputy secretary-general of the China Automobile Dealers Association.

"So far, it hasn't caused any real damage to the industry, but if the cash crunch continues, the impact will spread to auto dealers."

Banks are taking twice as long approving car loans after the cash crunch, which will hit mid-priced car sales the hardest, the Securities Daily reported yesterday.