China 2016 car sales surge at fastest rate in three years

PUBLISHED : Thursday, 12 January, 2017, 7:58pm
UPDATED : Thursday, 12 January, 2017, 10:56pm

Last year’s China’s car sales grew at the fastest pace in three years, buoyed by the government’s purchase tax waiver for small-engine vehicles.

But analysts see a dim outlook for this year amid an increase in the tax levy.

Carmakers sold 28.03 million cars in 2016, an increase of 13.7 per cent on the previous year, the government-backed agency China Association of Automobile Manufacturers (CAAM) said on Thursday. Yet the agency forecast the growth to slow to 5 per cent this year as the tax incentive has been reduced.

Chinese buyers scrambled to order cars towards the end of 2016, after the 5 per cent tax introduced in October 2015 to reinvigorate the automobile market was due to end at midnight on December 31, resulting in the biggest rate of growth in car sales since 2013.

It had previously been 10 per cent on vehicles with 1.6-litre engines or smaller. Sales of those small-engine vehicles last year increased by 21.4 per cent to 17.6 million units from the same period of last year, according to CAAM.

Many had expected the tax to simply resort back to 10 per cent, but the government decided on a lesser raise to 7.5 per cent after the tax break expired.

Home-grown and foreign brands posted decent sales growth last year with US’ General Motor selling 3.87 million cars, up 7.1 per cent from 2015, while Japanese brand Nissan Motor saw its China sales climb 8.4 per cent to a record 1.35 million last year.

Hangzhou-based carmaker Geely Auto posted a 50 per cent sales growth to 765,000 vehicles, and Great Wall Motor, the country’s biggest sport utility vehicles maker, delivered 1.1 million vehicles to buyers, a 26 per cent rise from a year ago.

But many analysts, including Hou Yankun, head of Asian auto research at Swiss Bank UBS, are already warning sales growth this year to slow to around 7 per cent.

“There is unlikely to be significant growth this year as many consumers rushed to buy cars last year because of the tax waiver, and that will inevitably have an effect on sales in the early part of this year,” he said.

Yale Zhang, managing director at research company Automotive Foresight, also sees a bleak outlook for this year, predicting sales growth to slow to about 5 per cent as the tax cut is reduced.

Analysts are optimistic, however, on increased demand for new energy vehicles.

Zhao Xiang, a senior analyst for the automobile sector at Analysys International, said subsidies offered by the government will continue to be an incentive for buyers of new-energy vehicles.

“Although the limit in range per charge is still a concern, a rise in the number of charging facilities have convinced more and more consumers to consider electric cars,” she said.

CAAM said new-energy car sales soared by 53 per cent last year to 507,000 vehicles from a year ago.