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China's sales slump: Not as scary as it seems
Yang Jian | 2019/2/22

SHANGHAI -- The latest sales figures from the China Association of Automobile Manufacturers are grim: New light-vehicle demand fell 18 percent year over year to 2.02 million in January. It was the seventh consecutive decline and the steepest monthly dip since July 2018.

But there are solid reasons to believe the world¡¯s largest vehicle market is not doing as badly as the raw numbers indicate. 

First, what the association releases each month are wholesale numbers. The decrease in new-vehicle sales at the retail level last month was much milder. 

Retail sales of new light vehicles dipped 4 percent to 2.16 million, according to the China Passenger Car Alliance, a consultancy affiliated with the China Automobile Dealers Association. 

The reason behind the wide gap between the decline in wholesale numbers and retail sales: Carmakers stopped dumping excess inventories on dealerships in January. 

That helps to explain why average stockpiles at dealerships dropped to a 42-day supply last month from 52 days in December. 

Another piece of important information, which is encouraging, is also missing in the China Association of Automobile Manaufacurers¡¯ release. 

While new-vehicle sales have dropped every month since July, used-vehicle deliveries remain robust. 

In 2018, used-vehicle sales across China posted double-digit gains for the third straight year, advancing 11 percent from 2017 to top 13.8 million behind demand for crossovers and SUVs, according to the China Automobile Dealers Association. 

More importantly, despite the extended slump in new-car sales, vehicle demand in China is far from saturated. 

At the end of November, there were 40 vehicles for every 100 Chinese households, well below the average in developed countries, according to the Ministry of Public Security. 

The Chinese government is also launching a scrappage program for light trucks and passenger vehicles with engine sizes of up to 1.6 liters for rural residents. 

It¡¯s a smart move to stimulate vehicle sales. In rural China -- home to more than half of China¡¯s 1.39 billion residents, there are just 19.3 vehicles for every 100 households.  

While slowing, the Chinese economy is still widely expected to grow around 6 percent in 2019. 

As long as the economy keeps growing and potential vehicle demand remains huge, it won¡¯t take long for the Chinese new-car market to stabilize, if not resume growth. 

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