New policy to boost car sales in short term
Editor's Note: Premier Li Keqiang said in the Government Work Report he delivered on Tuesday that the preferential policies on the purchase of new energy vehicles will continue to maintain steady automobile consumption. Three experts share their views on the issue and discuss how China’s car market will develop in the future with China Daily’s Yao Yuxin. Excerpts follow:
Car market has good long-term potential
Even before the Government Work Report was released saying car consumption would be stabilized, the National Development and Reform Commission and nine government departments announced an action plan in January to boost car sales. China sold 28.08 million cars last year, 2.76 percent less than in 2017, marking the first drop in auto sales in 28 years which dragged down overall retail sales.
To boost car sales after the global financial crisis broke out in 2008, the government introduced a stimulus policy in 2009. Thanks to the policy, car sales increased 46 percent year-on-year and later helped China become the world’s largest auto market.
This success was achieved a decade ago due to a number of factors: econom- ic recovery (albeit gradual), the halving of purchase tax and car sales promotions in smaller cities, and the low base of car ownership in the country at that time.
However, the new action is relatively modest: it lays emphasis on structural improvement and sustainable development of the car market by, among other things, subsidizing new energy vehicles. In the short term therefore the new stimulus policy may increase car sales, but the increase won’t be big.
Still, compared with the developed countries, China’s car market has good long-term potential, because vehicle penetration in the country, especially in rural areas, is low. And given that China’s aging population is rising, a growing number of senior citizens could buy cars to enjoy better travel experience.
Since the age of fast and assured growth is over, those who don’t respond to market changes will fail. And declining car sales may speed up the process of incompetent players being squeezed out of the market.
Modest increase in vehicle sales likely
Unlike the tax cut on car purchases in the past, this year’s plan will not yield immediate results, as it is designed mainly to improve the overall market environment and produce long-term results.
The government introduced a preferential car purchase policy, which allowed smaller vehicles with 1.6-litre or less powerful engines to enjoy up to 50 percent tax cuts from September 2015 to 2017. The stimulus policy helped car sales grow at 7.1 percent year-on-year.
After the government announced that the policy would be withdrawn at the end of 2017, many potential buyers rushed to purchase cars, making consumption ahead of schedule instead of creating demand, and drastically raising car sales that year. And since things returned to normal in 2018, the year registered a drop in car sales growth.
Considering the macroeconomic changes and impact of the policy changes, consumers may hesitate to buy cars this time. Plus, the rising housing prices in third-, fourth- and fifth-tier cities will further reduce people’s disposable income and leave a majority of them with little money to buy a car. In fact, in the third-, fourth- and fifth-tier cities, sales of passenger cars accounted for 72.8 percent of the total car sales in the third quarter of 2018, which was 13.8 percent lower than the previous year, according to the Yiche research institute.
As such, the stimulus policy the authorities announced early this year is likely to increase car sales by a modest margin.
To raise car sales, traffic must be better managed
The latest plan to boost car sales is not as strong as the stimulus policy issued a decade ago. For example, the new plan does not include nationwide tax cuts for car purchases. This means local govern- ments will have to make detailed local plans without any guaranteed financial support from the central government.
Nevertheless, the policy will help the market see modest — perhaps 5 percent — growth in sales this year.
A fall in macroeconomic growth would temporarily reduce car sales but the auto sector still has great long-term potential, as the number of car ownership per thousand people in China is 170, compared with 800 in the United States, and 500600 in European countries and Japan.
However, as plenty of young people from smaller cities move to metropolises, the restriction on license plates in order to reduce traffic jams and reduce air pollution will prevent demand from rising high.
The government should work out a plan to better manage the roadways and traffic, so it can gradually loosen the restrictions on the issuance of license plates.
Besides, the move to encourage people to buy cars doesn’t go against environmental protection rules, because technological advancement has made cars less polluting. As a result, industrial pollution rather than vehicular pollution are responsible for a major proportion of the overall air pollution today.