BEIJING (Bloomberg) -- China's monthly passenger-car sales growth slowed in May as falling stock prices eroded wealth and consumer prices rose in the world's largest automobile market.
Demand for cars, sport-utility vehicles and multipurpose vehicles rose 25 percent from a year earlier to 885,800 last month, the China Automotive Technology & Research Center said. That compares with 34 percent growth in April, according to the center.
The Shanghai Composite Index fell 9.7 percent in May as Chinese stocks remained among Asia’s worst performing this year. A “diminishing wealth effect” along with high gasoline prices may contribute to a slowdown in auto sales, Credit Suisse Group AG analysts Adrian Chan and Hung Bin Toh wrote in a report last week. Vehicle sales could decline from year-earlier levels in the second half of 2010, they said.
China's target of keeping inflation under 3 percent this year “will be a difficult task,” due to rising prices for bulk commodities including oil and disruptions to some agricultural production, Yao Jingyuan, chief economist at the China statistics bureau, said May 28.
16 million market forecast for 2010
China's passenger-car sales have risen every month since February 2009 after the government halved the consumption tax on small vehicles to 5 percent the preceding month, according to separate data from the China Association of Automobile Manufacturers. The rate was increased to 7.5 percent this year.
Monthly passenger-car sales growth slowed in April to the most sluggish pace since March 2009, according to the association, as China's consumer prices rose 2.8 percent from a year earlier.
The nation's vehicle sales may rise 17 percent this year to 16 million, and annual demand for automobiles may eventually exceed 30 million, according to the State Information Center.
VW, other carmakers boosting capacity
Automakers including Volkswagen AG, Honda Motor Co. and Nissan Motor Co. are rushing to add production capacity in China even as demand growth slows. Honda aims to be able to make 830,000 vehicles a year in the nation by the second half of 2012, or 28 percent more than now.
Nissan plans to boost local capacity to 900,000 vehicles a year by 2012 and to expand further after that, CEO Carlos Ghosn said last month.
Volkswagen and partner China FAW Group Corp. plan to invest 8 billion yuan ($1.2 billion) to build a plant in the city of Foshan in southern Guangdong province, according to the Foshan city government.
Vehicle inventories may be rising among dealers and manufacturers, and slowing demand could lead to a price war, according to Credit Suisse's report.
The Automotive Technology & Research Center, affiliated with the state-owned Assets Supervision and Administration Commission, assists the government in formulating automobile industry standards, technical regulations and product certification testing.
Total vehicle sales, which also include buses and trucks, increased 29.7 percent last month to 1.19 million units.