China auto curbs snarl car stocks

HONG KONG - Shares in SAIC Motor Corp, China's biggest auto maker, and other listed car companies have suffered serious damage after colliding with moves by the central government and local authorities to limit new car sales in an attempt to curb growing congestion in cities.

Great Wall Motor Co, China's largest maker of sport-utility vehicles, also saw its share price decline.

Growth in the passenger car market may more than halve to 10-15% this year, from about 30% last year, Yang Zaishun, vicesecretary-general of the China Passenger Car Association, said, with an end to central government incentives to buy new cars and the introduction of higher taxes on purchases. Subsidies to replace old models were introduced as part of a stimulus package to boost domestic consumption amid the global economic slowdown in late 2008.

Sales growth will definitely be affected this year, especially for models from domestic carmakers with engine
capacities of 1.6 liters or less, Jia Xinguang, an independent auto analyst based in Beijing, told Asia Times Online.

China's total vehicle sales surged 34% year-on-year to 16.4 million in the 11 months from last January to November, according to the China Automobile Industry Association. Whole-year sales are expected to have reached 18 million units in 2010, making the nation the world's largest auto market for a second year. Domestic sales of passenger cars rose by 28.94% year-on-year in 2010 to 8.57 million units, according to the Ministry of Industry and Information Technology (MIIT).

China overtook the US as the world's biggest car market for the first time in 2009, when the Asian giant's total automobiles sales rose 46.2% year-on-year, helped by the 4 trillion yuan (US$605 billion) government stimulus package to deal with the local impact of the global financial crisis.

On December 31, the Ministry of Finance said that from January 1 it would cease to subsidize vehicle purchases in rural areas. The support had been offered to encourage car owners to trade in old models for newer, fuel-efficient ones. Since the fourth quarter of 2008, a 3,000 yuan subsidy on purchases of cars with engines of 1.6 liters or smaller had been offered to rural residents.

The purchase tax for vehicles with engines under 1.6 liters would also be doubled to 10% from January 1, the ministry said on December 28. That reverses a February 2009 halving of the tax to boost sales. The latest tax move adds 2,000 yuan more in tax to the cost of a vehicle worth 80,000 yuan.

Local governments, meanwhile, have announced or are considering caps on the number of new cars on their roads in their efforts to ease traffic congestion.

The Beijing municipal government on December 23 took the lead by issuing a quota of 240,000 new vehicle license plates through a lottery system this year; about 88% will be allocated to individual buyers. More than 800,000 cars were sold in the capital city last year.

Other initiatives include higher parking fees, the banning of vehicles registered outside the capital from the city center and limiting a resident to owning one car.

Analysts said the auto market in the whole country is likely be affected as other provincial capitals and municipalities might introduce similar rules to solve increasingly serious traffic jam problems.

Guangzhou, provincial capital of south China's Guangdong province, Chengdu, capital of southwest Sichuan province, and Hangzhou, capital of eastern Zhejiang province, have considered similar measures.

"Once other cities follow suit after Beijing to restrict new car registrations, it will have a serious impact on automobile sales," Jia said.

Beijing's restriction on new car registration will cut market demand for passenger vehicles in the city by 70% and reduce the country's total demand by 4% this year, according to Kate Zhu of Morgan Stanley Research.

Beijing accounted for 6.9% of China's total sales in 2010, but luxury vehicles have the biggest exposure in the capital, led by BAIC Motor's Mercedes-Benz, followed by Audis imported from the German luxury carmaker of that name.

Mercedes-Benz has the highest sales exposure in Beijing, at 19.1% of the market. The vehicles are sold by BAIC Motor Co, in which Beijing Automotive Group (BAIC Group) has a 51% stake with the rest held by Daimler AG and Hyundai Motor Corp. Audi had 12.8% market share in Beijing in the first 11 months last year.

Among the Hong Kong-listed auto names, Zhu said that Brilliance China's BMW has the highest exposure to the Beijing market with 12.7%, followed by Dongfeng Motor (7.3%) and Guangzhou Motor (6.5%). Other Hong Kong listed car makers are BYD, with 4.6% exposure to the Beijing market, Great Wall (2.9%), and Geely (2.4%).

China's passenger car sales will grow 11% this year, according to Yang Yipeng, of Goldman Sachs, who estimated the negative impact of the central government's traffic control policy will hurt new sales by around 4.5% this year.

Nomura International lowered its forecast for 2011 passenger vehicle sales growth to 13.4% to reflect the potential effects of the policy.

In Shanghai, the government measures added further pressure on the shares of SAIC Motor Corp, which have declined about 31% since October 26, and are down to 15.01 yuan on Tuesday from 16 yuan on December 23.

Dongfeng Motor Group was trading in Hong Kong on Tuesday at HK$13.1, down about 7.8% from its December 23 close and about half its recent high value of HK$26 on November 8 last year. Great Wall Motor Co closed Tuesday at around HK$21.55, down 10% from just before Christmas.

Niu Wenyuan, director of the Chinese Academy of Sciences' Sustainable Development Strategy Research Center, told Asia Times Online that Beijing suffered the most among the mainland cities from serious traffic jams, as residents spent about two hours in traffic a day.

Niu's estimate is based on figures in the 2010 report on a New Chinese Model of Urbanization, released by the Chinese Academy of Sciences, which found that it takes between 39 and 41 minutes for Chinese residents who live in a city of one million people, to go to work for a one-way trip. By comparison, residents of a city of one million people in Europe spend only 27 minutes in traffic for a one-way trip, he said.

The combined daily economic loss due to traffic congestion in China's 15 biggest cities, which account for 60% of the country's total GDP and include Guangzhou, Shanghai municipality, Chengdu and Hangzhou, is estimated at more than 1.2 billion yuan a day.

BYD spokesman Paul Lin said he did not expect a big impact on the car sales of the company as the measures will have a short term impact only.

"Last year was a special year; no one expected the car sales rose so sharply under the global economic slowdown, and the measures launched by central and local governments are aimed at curbing the soaring growth a bit," he said. "Once the infrastructure projects in the cities catch up to the growing number of cars, the car market environment will be adjusted or improved by the authorities."

He said BYD has not set its sales target for this year. In 2010, it sold about 550,000 units, compared with the 450,000 in 2009 and 200,000 in 2008.

Toyota Motor Co spokesman Akiko Machimoto said the company expected China sales to reach 900,000 cars this year, up from more than 800,000 cars in 2010.