While macro data on China show that industrial production is stabilizing, property sales rebounding and fixed asset investment beginning to accelerate again, hard data from the car market belies forecasts of gross domestic product growth of 9 percent to 10 percent.
At a time when government planners are delivering annual retail sales growth figures as high as a still-slowing 16.9 percent in May, one vital figure doesn’t look good. This car sales, and that is a problem. China’s car market is now the world’s biggest, with demand expected to increase as per capita incomes have risen sharply.
Most economic performance figures are built on car production at the factory doors. That is misleading. The numbers of cars going off the lot from dealer showrooms is the actual figure that shows what consumers are buying. In Beijing, car sales were off 50 percent in June year-on-year and around 5 percent month on month as the economy tightens, as reported by Research-Works, an independent Shanghai-based market research firm.
If consumer sales are off sharply, that presents a dilemma to government planners. China is now seeking to control stubborn inflation, which hit a 34-month high of 5.5 percent annual growth in the consumer price index in May. In order to control inflation, the government must continue to keep money supply tightly reined in and interest rates relatively high – both of which put the brakes on consumer spending.
Research-Works actually compiles sales off the lot and excerpts sales of pickups, trucks and other vehicles that are likely to be bought by companies and state-owned enterprises. Sedan sales thus should more closely reflect consumer buying trends. Those figures show that sales of sedans sank by 3 percent annually in June after being flat in May. The month-on-month decline is accelerating, Research-Works says, with sales decreasing at a 12-percent clip nationally, compared with a 9 percent fall in May as consumers adopt a wait-and-see approach during the traditional off-peak buying season. Research-Works believes the industry will be back to growth in about October.
Nationally, car inventories – those on the lot without being sold — were up to between 48 and 52 days in June, a slight rise from May at 45-50 days, with dealers telling Research-Works that with Japanese carmakers’ production recovering, pressure is rising on inventories. UBS Investment Research China auto sector analyst Guoxi Chen, in a recent report, estimated that inventories for Chery, one of the country’s populatdomestic brands, was probably around three months in June, and for BYD higher than two months.
Dealers have responded to the sluggish sales by cutting prices by an average of 0.5 percent while hoping that Beijing will launch policies to curb the downward trend in sales. Central and Northern China are being hit hardest, according to Research-works, with sales off 10 percent in June after decreasing 5 percent in May. Sales in Hunan, Chongqing and Henan fell about 10-20 percent respectively in June, after decreasing about 5-10 percent in May
Nor are cars the only problem, In a bleak July 6 article in the New York Times, David Barboza wrote that there “are growing signs that China’s long-running economic boom could be undermined by …building binges, which are financed through heavy borrowing by local governments and clever accounting that masks the true size of the debt.”
Barboza describes a situation in which China’s local governments “could already be sitting on huge mountains of hidden debt — a lurking liability that threatens to stunt the nation’s economic growth for years or even decades to come. Just last week China’s national auditor, who reports to the cabinet, warned of the perils of local government borrowing. And on Tuesday the Beijing office of Moody’s Investors Service issued a report saying the national auditor might have understated Chinese banks’ actual risks from loans to local governments. “