YANG JIAN

Chinese cities limit car sales but growth is still possible

Yang Jian is managing editor of Automotive News China.Yang Jian is managing editor of Automotive News China.
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The port city of Dalian in northeast China has approved a plan to restrict sales of new cars. Dalian is the fifth city in China -- along with Beijing, Shanghai, Guiyang and Guangzhou -- to restrict vehicle sales, and others are expected to join them.

With traffic congestion and air pollution at crisis levels, many Chinese cities are expected to put the brakes on new-vehicle registrations.

Over the next two years, two other cities -- Hangzhou and Chengdu -- are most likely to impose limits on sales of new vehicles, predicts IHS Automotive, a market research firm.

These municipal restrictions are starting to take a big bite out of car sales. Last year, they reduced passenger vehicle sales in China by 500,000 units. By 2015, they are expected to reduce sales by 900,000 units.

Scrappage and replacement

And that's not the end of it. At least six other major cities -- Tianjiin, Shenzhen, Shijiazhuang, Chongqing, Qingdao and Wuhan -- are likely to limit car sales over the next few years, according to the China Association of Automobile Manufacturers.

Once a Chinese city slaps restrictions on auto registrations, sales of new cars drop by 30 to 50 percent, according to UBS, the investment bank.

That's the down side of China's battle to fight pollution. But there may be some good news, too.

In September, Beijing issued the China Clean Air Act to enact stricter emission standards. The act could trigger an effort to scrap old vehicles and replace them with new cars. As many as 5 million cars will be scrapped by 2017 for failing to meet new emission standards, predicts IHS Automotive.

The auto industry also will get a boost from former first-time car owners who are finally ready to replace their vehicles. In 2017, replacement vehicles will account for 33 percent of total passenger vehicle sales in China, up from 21 percent in 2012, according to IHS Automotive.

A lift from subway lines

By next decade, automakers might even get a lift from China's campaign to build public transportation.

China has 144 cities with a population of more than 3 million, but only 18 have subways. In Shanghai and Beijing, the two cities with the most developed subway systems, the subways carry only one-third of local motorized transport.

Once a city's subway lines carry more than 40 percent of its motorized transport, the municipality no longer will need to restrict car driving.

By 2020, the subway systems of China's three biggest cities -- Shanghai, Beijing and Guangzhou -- will carry at least 40 percent of motorized transport.

At that point, these cities are likely to remove their limits on sales of new vehicles, said Lin Huaibin, an analyst with IHS Automotive in Shanghai.

So auto executives need not fret about China's clean-air campaign.

New subways, scrappage campaigns, replacement cars and strong demand in China's small cities will help grow industry sales more than 10 percent a year for the next two years, IHS predicts.

That's a pretty rosy picture. Perhaps auto executives can lay their fears to rest.

You can reach Yang Jian at yangjian@autonewschina.com.

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