China’s car sales growth hits the brakes in January on tax cut rollback

PUBLISHED : Monday, 13 February, 2017, 7:32pm
UPDATED : Monday, 13 February, 2017, 10:50pm

China’s car sales growth slowed to 0.2 per cent in January, the lowest since February 2016 as a rollback in tax cuts and the Lunar New Year holiday dampened sales.

Car sales in the first month of the year increased to 2.52 million from 2.5 million vehicles in the same month last year, the China Association of Automobile Manufacturers (CAAM), a government-backed industry group, said on Monday.

The growth significantly slowed from a 9.5 per cent increase in December and a 16.6 per cent rise in November.

Passenger car sales in January dropped 1.1 per cent to 2.22 million vehicles from the same period last year.

Yale Zhang, managing director at consultancy Automotive Foresight, said January’s sales figure was better than market forecasts, as analysts expected a decline in year-on-year sales because of the Lunar New Year holiday.

This year’s Spring festival fell in January, while it was in February in last year.

I expect only single-digit growth in the first quarter, and this is already an optimistic forecast
Yale Zhang, managing director at Automotive Foresight

“The better-than-expected car sales in January revealed that the impact of the reduction in tax cut is not as significant as we have expected,” Zhang said.

In October 2015 Beijing cut the tax levy on vehicles with 1.6-litre engines or smaller to 5 per cent in an attempt to boost sales in the world’s largest automobile market. The tax break expired at the end of 2016, so since the start of this year it has risen to 7.5 per cent – though still below the normal rate of 10 per cent.

Last year, China’s car sales grew by 13.7 per cent to 28.03 million vehicles, the fastest growth pace in three years, buoyed mainly by the government’s purchase tax incentive.

Zhang said car sales growth in the first quarter is expected to see significant slowdown as many Chinese buyers scrambled to buy cars last year at the lower tax rate.

“I expect only single-digit growth in the first quarter, and this is already an optimistic forecast,” he said.

CAAM estimated that car sales growth for this year will slow to 5 per cent.

Some carmakers in China experienced a setback in sales in January. US carmaker Ford said the company and its joint ventures in China sold 88,432 cars in the month, down 32 per cent from the same period last year. Japanese carmaker Nissan said its January sales in China fell 6.2 per cent.