There are three reasons why CRU expects China's auto sector to remain weak in 2019-2020
Payback for prior policy stimulus The ending of the car sales tax rebate in 2018, has reduced auto demand in 2018, but looks to have extended into 2019.
Uncertainty remains elevated Chinese policymakers are engineering a 'managed' slowdown in China, but it is not clear what that looks like, given the ongoing US-China trade war; such uncertainty is likely to suppress the purchase of new vehicles.
New (Stage VI) auto emissions standards were effective in many cities from 1 July 2019 and nationwide from 1 July 2020; the new rules inevitably create uncertainty for all market participants, manifested in temporary auto sector weakness.
Auto sector has seen a fivefold rise since 2005
The auto sector in China has seen impressive growth in recent decades. Auto production rose from 5.7 million units in 2005 to 28.3 million units in 2018 - a fivefold rise. 80% of the vehicles produced are personal cars, with 20% being produced for commercial use, such as vans and trucks. Every year since 2005, auto sector production has grown. It has grown very rapidly in some years such as 2009 - where production rose by nearly 50%.
The auto sector contracted for the first time in 2018. This is a significant event, given that the sector remained resilient even during the global financial crisis of 2008-2009. That makes the recent contraction in the auto sector a real talking point. Auto production fell from 29.1 million units in 2017 to 28.3 million units in 2018. We expect the contraction to continue into 2019 with production reaching 26.9 million units by the end of 2019. We expect the market to remain broadly flat, with 0.7% growth, in 2020. From that low base, we expect modest growth rates of around 2-3% allowing production to rise to ~30million units by 2023.