Auto industry booms in a slowing economy - Sara Hsu

Sara Hsu

The Beijing Auto Show was an exceptional bright spot during an economic slowdown that is worrying many, writes financial analyst Sara Hsu in the Diplomat."We can expect China’s auto industry to keep moving."

Sara Hsu:

SUVs have increased sales in recent months, particularly as Great Wall Motor and Chongqing Changan Automobile Co reduced prices on entry-level SUVs. SUV sales increased by 45 percent between 2014 and 2015, reaching 6 million vehicles in 2015, or one third of new passenger vehicle sales. New energy vehicles have increased sales from a low base, with eager new Chinese firms planning to enter the electric car market. 

Government policy has boosted car sales, with a 50 percent cut in smaller engine sales tax in October of last year making vehicle purchases more attractive. The government is also providing state subsidies of up to 120,000 RMB for the purchase of electric cars until 2017 in order to reach a target of having five million electric cars on the roads by 2020. A government directive also requires banking institutions to lower the down payments for new energy vehicles, while another requests that public institutions add more NEVs to their car pools. The government is invested in ensuring that consumers obtain the best prices possible in general. Anti-monopoly law has been drafted to increase competition in the auto sector and improve conditions for the consumer. 

China’s well-functioning auto sector is a bright spot in a dwindling economy. Automobile consumption boosts consumer spending, which China’s leadership is attempting to expand. Encouraging innovation and ensuring competition by reducing monopolistic practices continue to benefit the sector. Meanwhile, the participation of Chinese firms in vehicle production helps to ensure China’s viability in this global sector. While infrastructure, a necessary complement to vehicle use, may lag in some regions, China’s commitment to development and urbanization will ensure that roads and electric vehicle charging areas continue to expand. We can expect China’s auto industry to keep moving.

More in the Diplomat.

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