Industry predicts demand will mirror income growth, as Hao Yan and Du Xiaoying report 

 

A faster pace of 6 percent year-on-year growth in the Chinese automobile market is predicted this year, in an expectation that the authorities will help unleash customer demand. 

 

Vehicle sales in the world's largest car market surged to a record 24.6 million units last year, but remained at a low growth rate of 4.7 percent, a three-year low, according to a report released on Jan 12 by China Association of Automobile Manufacturers. 

 

The association forecasted the automobile market would expand to 26 million units in 2016, and pinned that hope on supply-side structural reform. The industry will have ample room for development, as customer demand and usage is artificially restrained in many first- and second-tier cities, according to the report. 

 

The central government started to stress "supply-side reform" in December, as a turning point in macro-policy. The move comes as China steers toward a growth model based on domestic demand, innovation and the private sector instead of trade and credit expansion. 

 

The country vowed to "add new supply, create new consumption and form new growth momentum" through new ideas in institutions, technology and products. 

 

Fu Yuwu, president of the Society of Automotive Engineers of China, said: "The Chinese automobile industry has completed its growth from small to big. Now it is stepping up to a stage developing from big to strong, the format is changing immensely." 

 

Dong Yang, executive vice-president of the association, said the reform will push carmakers to reduce their costs in manufacturing and elevate their competitiveness. 

 

Dong said the Chinese people's living standards have improved as their incomes grew, and vehicle buyers are likely to focus on such factors as space and power. 

 

"These demands are mostly met by the supply of sport utility vehicles, and the segment has become the highlight of the past two years," Dong said. 

 

LOW-EMISSION VEHICLES  

 

The tax reduction policy for small-engine vehicles will accelerate the sale of cleaner emission cars in China this year, the China Association of Automobile Manufacturers said on Tuesday. 

 

China sold 14.5 million passenger vehicles with engines of 1.6 liters or below in 2015, up 10.38 percent year-on-year. That was higher than the growth rate of the overall passenger car sector and accounted for 68.6 percent of the sector's sales. 

 

The association said the policy contributed greatly to the growth of China's auto sales in 2015. However, the effect of the policy may negatively affect next year's auto sales if there is no new rise in market demand. 

 

Once the policy expires at the end of this year, the association said, it is unknown whether a similar policy will be put in place to influence customers' purchasing. 

 

China implemented the policy on Oct 1, offering a 50 percent reduction in new vehicle purchase tax for vehicles with engines no larger than 1.6 liters. 

 

Statistics from CAAM show that the sales of vehicles with engines between 1 liter and 1.6 liters from October to December surged 25.8 percent year-on-year, much higher than the 6.8 percent growth in the earlier months of 2015. The sales of vehicles with engines smaller than a liter rose 9.2 percent year-on-year from October to December. January to September recorded a 39.2 percent year-on-year decrease. 

 

"Using smaller engines is not the best way to lead energy-saving and emissions reduction, but it is the simplest way," said Dong Yang, executive vice-president of CAAM, who said the tax-cut policy has had a clear effect on the government initiative of saving energy and reducing emissions. 

 

Dong said the sales increase in the sector in the last quarter of 2015 demonstrates people's basic needs of owning a vehicle. 

 

DEMAND FOR LARGER VEHICLES  

 

SUV sales volume in China reached 6.2 million units, a surge of 52.4 percent from 2014, and the MPV segment expanded 10 percent to 2.1 million units. 

 

Wu Shaoming, secretary general of CAAM, said customers' preferences moving toward SUVs and MPVs is a worldwide trend. "Automobiles are developing beyond just mobility. It is more a feel or experience, especially for those who are buying their second car. The car is now a mobile home." 

 

He spoke of his own experience: "Sitting in an SUV, I feel different. I'm up high there when sedans are around. After driving an SUV, I feel like sitting on the ground in a sedan." Wu forecast that the next trending segment in the market will be MPVs. "A family may have two kids in the future, and needs to carry more people in a spacier vehicle. They probably want to lay down the seats to rest during a trip." 

 

SAIC-GM-Wuling's Hongguang compact MPV topped the Chinese passenger car market for a 10th year in 2015, with more than 655,500 units sold, accounting for 5.6 percent of the total share. 

 

NEV SECTOR  

 

With strong policy support from the central government, China's new-energy vehicle sector is expected to retain an explosive growth rate and sell about 700,000 vehicles this year, the China Association of Automobile Manufacturers said on Tuesday. 

 

The association said the removal of restrictions on purchasing new-energy vehicles nationwide would stimulate the sales of NEVs in cities that apply such restrictions, including Beijing, Shanghai, Guangzhou and Shenzhen. 

 

Preferential policies for government promotion of new-energy vehicles have quantitative requirements, which will push the development of new-energy buses, the association said. 

 

The new national charging standard for NEVs went into effect on Jan 1 and is also expected to help the market surge. China produced 340,471 new-energy vehicles and sold 331,092, an increase of 330 percent and 340 percent from the previous year. The growth rate in China's overall auto industry was 3.3 percent in production and 4.7 percent in overall sales. 

 

The country manufactured 254,633 pure electric cars and sold 247,482, a surge of 4.2 times and 4.5 times year-on-year. The output and sales of plug-in hybrid vehicles were 85,838 and 83,610 units, rising 190 and 180 percent from the previous year. 

 

The proportion of NEV sales in China's total vehicle sales achieved a record high of 1.3 percent last year. It is the first time NEV sales accounted for more than 1 percent of the country's total vehicle sales. That is much higher than industry experts' expectations of 200,000 units, as predicted at the beginning of the year. 

 

Dong Yang, executive vice-president of CAAM, urged NEV makers to pay more attention to the quality of vehicles and customer experience, instead of output. 

 

Dong said automakers should lower the cost and improve the performance of their new-energy vehicles. "They should enhance the development of technologies and vehicle safety," he said. 

 

Wu Shaoming, vice-president and secretary-general of CAAM, said the next five years would be full of opportunities for NEV makers, who should seize the opportunities to transform and upgrade their companies. 

 

According to Wu, China's NEV sales will account for 6 to 8 percent of the country's total vehicles sales by 2020.