In case you still had any doubt why China is loathe to sign onto some treaty that would limit their emissions, just get a load of the latest data on their market.
The following commentary and chart come courtesy of Waverly Advisors:
Chinese domestic automotive sales rose by 46.40% year-over-year in February to 1.21 million total units sold according to data released by the China Association of Automobile Manufacturers, with the passenger car segment up by 55% from last February’s levels and with estimated production levels for passenger cars slightly exceeding sales. To put this in context: With last month’s Lunar New Year celebration taking up perhaps 30-40% of the total production and sales days with the two week long celebration and the annual visit home that millions of migrant workers make, these sale and production levels are enormous.
The Chinese automotive industry is continuing to ramp up capacity to meet demand. Changan Automobile, the 4th largest domestic producer by sales (and a strategic partner of Ford) yesterday reported 2009 total revenues up by 88.4% on a 64.1% increase in total units sold, adding that the company anticipates government policies will continue to support industry growth at the present pace for the foreseeable and that facility expansion will likely continue. Changan is not alone in ramping up capacity, smaller rival Chery, best known for compact cars, recently announced a new factory launch in Eros in inner Mongolia despite the fact that their new facilities in Wuhu and Dalian have not yet been completed. Indeed there are anecdotal media reports of worker shortages as factory workers failed to return to coastal regions after the new year celebration choosing instead to remain closer to home at new inland automotive factories.
Signals from Beijing do seem to indicate that the automotive industry will continue to receive special support even as tightening measures are implemented broadly. In a newspaper interview yesterday, Ministry of Industry head Li Yizhong reaffirmed the government’s commitment to subsidies for green automotive technology to help achieved the official target of 500k green cars on the streets before 2013.
Clearly the pace of sales and production growth must moderate over the coming quarters (and it will be years before any domestic producers are able to meaningfully compete in the export markets), but even as the incentive driven demand recedes the long term growth prospects remain massive. The primary questions facing the industry in the near term appear to be 1) is new capacity that is coming on board now really necessary or is there significant building now underway which is superfluous and 2) when will industry consolidation begin in earnest? Recent moves by Beijing to reign in provincial and municipal debt practices may be a turning point that helps drive smaller regional parts manufactures into the fold of larger firms, but the segment remains fragmented with opportunities abounding for greater efficiencies.
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