More Chinese cities set to join Guangzhou and Shenzhen in increasing car ownership quotas to lift declining sales

China’s local governments are taking steps to boost car sales that have fallen for 10 consecutive months through April by increasing the annual quota of new licence plates in some of the mainland’s biggest cities that are plagued by traffic congestion.

Guangzhou and Shenzhen in the southern Guangdong province announced last week that they will increase the supply of licence plates in the two cities by at least 42 per cent through 2020, a move Jefferies Financial Group said was unexpected because of traffic problems in China’s big cities.

The increase in licence plate quotas is expected to add 340,000 new cars on the roads and it may soon be extended to other mega cities such as Beijing and Shanghai, according to the US investment bank.

Guangzhou and Shenzhen are the first among seven megacities that also includes Beijing, Shanghai, Tianjin, Hangzhou and Guiyang that have loosened curbs on buying cars amid a sales contraction.

Car sales in China fell 15 per cent year on year in April. Annual sales dropped in 2018 for the first time in more than two decades, weighed by a slowdown in the economy and escalating trade tension with the US.

“The loosening of purchase restrictions in Guangdong indicates that local governments are more than willing to respond even before the central government’s official policy comes,” said Patrick Yuan, an analyst at Jefferies in Hong Kong. “It is only a matter of time before we see similar policies from Beijing, Shanghai [and other cities].”