Manufacturing News

Despite slowing economy, China's auto market is poised to grow in 2012

China's automakers might as well forget about those wild times in 2010 when light-vehicle sales rose 33 percent.

With exports slowing and the domestic real estate market cooling, China's economy is catching its breath.

But the nation's auto market remains healthy. According to projections by IHS Automotive and LMC, light-vehicle sales are expected to rise 8 to 10 percent in 2012, up from a likely 3 percent this year.

Given the world's economic woes and the challenges that China's economy faces, that would still be a remarkable growth rate.

Earlier this year, Beijing restricted residential property purchases in an effort to prevent a real estate bubble. As a result, China's economic growth dropped to 9.1 percent in the third quarter, down from 9.7 percent in the first quarter.

With the global trade showing no sign of quick recovery, China's economic growth is expected to slow to 8 percent in 2012. Yet, most analysts agree that China's auto market will grow faster than it did this year.

Here's why: In 2010, China's per capita income exceeded the world's average of $4,200, according to the World Bank.

Yet, fewer than 15 of every 100 Chinese households owned a car in 2010, a much lower rate than the international average. That means China still has a tremendous pent-up demand for automobiles.

So why can't the auto industry expect a return to the wild sales increases of 2009 and 2010?

At the time, consumer demand was fueled by tax breaks on small cars plus a government scrappage incentive that had been introduced early in 2009. Those incentives were phased out in December 2010.

Environmental regulations also could drag down China's car sales in 2012.

Traffic congestion and air pollution have become big headaches for major Chinese cities. To ease those problems, the city of Beijing imposed a strict quota on new car sales. Other cities may follow Beijing's example.

Given China's unpredictable economy and its regulatory uncertainties, a sales increase of 8 to 10 percent should look pretty good to the auto industry.

The world's largest auto market continues to grow.

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