China's goal of becoming car export powerhouse stalls

The Wall Street Journal - China's ambition to export Chinese-made cars around the world has hit a speed bump with shipments falling for the last two months in a row.

The country exported 84,400 cars last month, around one-fifth fewer than the same period last year, an auto industry group said on Wednesday. That follows a 16% slump in May—the first year-over-year drop in five years.

Still modest exports to markets including Iraq, Vietnam and Turkey are declining as global economic growth remains sluggish and several of the countries Chinese manufacturers have targeted face economic and political difficulties.

June's export drop was disclosed on the same day that statistics showed a 11% rise in total vehicles sold in China last year, indicating the local market remains solid despite slowing domestic economic growth. China is the world's largest auto market by sales.

Data from the semiofficial China Association of Automobile Manufacturers showed Chinese car makers captured 38% of the country's passenger-vehicle sales in June, down from 47% at the end of last year. The figures suggest foreign-branded cars continue to dominate the market, pointing to problems for Chinese brands facing a market flush with auto factories.

CLSA auto analyst Scott Laprise said some Chinese car makers had turned to export markets because they struggled to sell their cars at home. The country has about 140 domestic auto makers. "This approach is not sustainable," he said. "Such auto makers will likely fail and could trigger the start of a downturn" for Chinese-banded cars, he said.

Total auto sales in China reached 1.75 million vehicles in June, while sales of passenger vehicles rose 9.3% to 1.4 million units. In the first half of this year, vehicle sales grew 12% to 10.78 million, and passenger cars rose 14% to 8.67 million, CAAM said.

The decline in auto exports comes as China's total exports fell 3.1% in June from a year earlier, data from the General Administration of Customs showed Wednesday, down from May's 1% rise and expected 3.3% growth.

Analysts attributed the fall in Chinese auto exports to a softening in demand from emerging markets, violent protests in Turkey and Brazil, and a rising Chinese yuan.

CAAM said countries such as Iraq, Venezuela, Iran, Vietnam and Turkey saw biggest drops in imports of Chinese cars.

Export destinations for Chinese cars are highly concentrated on South America, Middle East and Russia. "Volatility in one destination market can easily hit overseas performance," said Yale Zhang, an analyst at automotive consulting firm Automotive Foresight in Shanghai.

Major Chinese car exporter Geely Automobile Holdings Ltd. GELYY -4.68% said

Monday it shipped 9,337 vehicles to overseas markets in June, down 11% from a year earlier. A Geely spokesman cited street protests in Brazil, yuan appreciation and weaker-than-expected recovery in emerging economies for the drop.

The yuan has gained this year about 20% against the Japanese yen and 10% against the Korean won.

Dong Yang, executive vice chairman and secretary-general of CAAM, agreed the yen's depreciation has impacted Chinese auto exports, but he wasn't sure by how much. Chinese export vehicles compete with secondhand Japanese cars in some places such as Africa.

Macquarie Securities analyst Janet Lewis said weak demand in export markets is playing more of a role than currency considerations.

Through the first six months of this year, Chinese exports of cars dropped 0.6% from a year earlier to 486,800 vehicles. Last year, sales of China-made cars in overseas markets grew about 30%.

"For Chinese car makers, the day in which they can grow exports at 50% or even higher has come to an end. The situation is more challenging," said Mr. Yang, citing toughening government regulations on car imports.

In Brazil, the local government increased a tax on imported cars by 30 percentage points in late 2011, and it has since then toughened the rules for auto makers wanting to qualify as domestic producers, requiring them to spend more on local research and development.

Analysts said the export decline is adding to the gloom for home grown car companies, which have been pressured by increased competition from foreign auto makers in the Chinese car market.

Another headwind is local. Some governments are expected to join Shanghai, Beijing and Guangzhou in forcing vehicles off the streets to ease the country's traffic congestion and improve air quality.

CAAM criticized such policies on Wednesday, saying the market share of Chinese cars in Beijing, Shanghai and Guangzhou, had been cut in half to around 10% after the cities imposed policies aimed at limiting car purchases.

"Chinese domestic car makers are still developing…. At this critical point, imposing purchase limits is running counter to the central government's call for more uses of home grown brands," Shi Jianhua, deputy general secretary of CAAM said.