Portfolio | Carmakers on road to recovery in China
Industry can expect further policy support after October turnaround, say analysts
China’s car sales rebounded in October after the government halved sales tax to 5 per cent for small vehicles, and analysts say continuing policy support should deliver modest growth for this pillar industry into the coming year.
Sales volume of passenger vehicles increased 13.3 per cent year on year after it shrank between June and August, while September’s tax cut for cars with engine sizes of up to 1.6 litres boosted the monthly market share for that class from 65.5 to 69 per cent.
Major domestic players SAIC, Dongfeng Motor, China Chang’an Auto and BAIC posted double-digit volume growth, although FAW missed out. Leading joint-venture manufacturers also reported positive returns.
“Generally, we believe investor sentiment on the China auto industry has improved since the purchase tax cut at the end of September 2015, though the actual impact could be a mixed bag,” wrote Daiwa analyst Kelvin Lau in a November 20 note.
READ MORE: Lifting the handbrake: China’s auto industry prepares to accelerate
Lau singled out sales of luxury models from “4S” authorised dealerships, which continued to struggle in the face of an official austerity drive.
Fitch analysts say the industry in China suffers from excessive inventory, stiff price competition and margin pressure. Rising labour costs are also hurting margins and could increase the sector’s vulnerability to outside competition from the likes of Mexico, according to Standard Life Investments.
