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How Beijing's campaign to protect the environment is hurting auto sales
Yang Jian | 2019/5/17

SHANGHAI -- China¡¯s economic growth has shown signs of stabilizing, but new light-vehicle sales have continued to decline, sliding 15 percent year on year to 6.8 million in the first four months. 

What is prolonging the auto industry¡¯s slump? A government official points to China¡¯s environment protection campaign as a main culprit.

Speaking last week at an industry forum in Beijing, Xu Changming, vice director of the State Information Center, pointed out that two campaigns the government launched last year have kept weighing down new-vehicle sales. 

One is the Financial Risk Protection campaign, regulatory measures Beijing took in the second quarter to extend tight control on bank lending to borrowers through third parties such as asset management companies, trust firms and online consumer loan lending platforms.

The other is the Blue Sky Protection campaign, increased efforts across China to crack down on industrial companies that fail to comply with emission and waste-treatment standards in production. 

Both campaigns have been trumpeted in official media and produced quick results. 

In the second half of 2018, private businesses in general started to face a credit crunch, which prompted Beijing to encourage domestic banks to lend to the private sector. 

The reason? State-owned enterprises have the implicit support of the government and can easily obtain loans directly from banks. But most private companies, lacking such a privilege, must go to nonbank entities for loans. 

In July, new-vehicle sales turned south and have continued to decline. But few Chinese media outlets or industrial bodies were bold enough to blame the government-led environment protection campaign for the market contraction. 

Like the Financial Risk Protection campaign, the Blue Sky Protection effort has also hit the private sector much harder than state-owned enterprises, according to Xu.

That¡¯s because most private companies are small and medium-sized enterprises, or SMEs, and cannot afford to invest as much as their state-owned peers in environment protection technologies. 

The two campaigns have hurt the private sector, with many SMEs facing bankruptcy or closure. That, in turn, has affected new-vehicle sales, Xu noted. 

In China, ¡°private businesses account for 80 percent of job creation in urban areas, while more than 70 percent of new-car buyers are privately employed,¡± he said, drawing on the statistics his organization has collected. 

¡°Weaker SMEs have directly resulted in weaker car purchases,¡± he concluded. 

In the first quarter of this year, China¡¯s economy grew at the same pace of 6.4 percent as in the previous quarter. But the decline in new light-vehicle sales across the country has accelerated, plunging nearly 18 percent in April. 

There is no sign that China¡¯s government will relent in its Blue Sky Protection campaign. 

Thanks to Xu, observers can better understand why China¡¯s economy and its car market are moving in different directions. 

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