China car sales growth unlikely to accelerate in H2

Car sales growth in China, the world's second-largest auto market, is unlikely to accelerate in the second half of the year after a mild first-half slowdown, as a sharp rise in fuel prices weighs on demand, analysts said.

After a surprise hike of nearly 20 percent in fuel prices last month and with more increases likely, they expected second-half sales growth may be capped at 15 to 16 percent, extending the first half's dip to 17 percent from 20 percent-plus annual growth since 2005.

"It is not the June hike itself, but expectations of more such moves that are pursuading people to delay car purchases or shift to more fuel-efficient models," said Wang Mingchun, an industry analyst with Tianxiang Consulting.

Despite the modest slowdown, China remains the world's fastest-growing major car market, with auto ownership lower than 60 cars per 1,000 people -- only one-10th of levels in the developed world.

Global automakers such as General Motors and Volkswagen AG, whose Chinese joint ventures are the leading players in the market, have relied heavily on the Chinese market as a source of sales growth.

Analysts blamed the market slowdown in the first six months of the year, when 3.61 million cars were sold, to a devastating earthquake that hit southwest China in May and extreme weather conditions that blocked roads and hampered auto parts supplies.

FUEL PRICES

Flooding from heavy rains in southern China's Guangdong province forced Honda Motor to suspend production at several major plants in early June, leading to a rare year-on-year drop in its China car sales for the month.

"I'm not sure why so many bad things have all happened at once during the Olympic year, but they definitely had an impact on what was supposed to be another bumper year for car makers," said Yi Junfeng, an industry analyst with Changjiang Securities.

Beijing's decision this year to shorten the May Labour Day holiday, one of the country's three week-long public holidays, was also blamed for slowing cars sales in April, as many Chinese cancelled vacation trips and postposed car purchases.

Car sales rose merely 11 percent in April, down from 16 percent growth in the April 2007, according to official data.

For the second half, fuel prices are seen as the principle negative factor for the market.

On June 20, China raised retail gasoline and diesel prices by around 1,000 yuan ($146) a tonne, or nearly 20 percent, the first rise in seven months and the steepest one-off hike ever.

The price hike is widely seen as heralding more rises in coming months or years, as the government removes caps on low state-set fuel pump prices that have generated losses at oil refiners and led to sporadic fuel shortages.

Overall vehicle sales in the second half, including trucks and buses, are also not likely to match the 18.5 percent increase in the first six months, which was inflated by a 22 percent rise in commercial vehicle sales, analysts said.

Companies and small-time business owners had rushed to buy trucks before the implementation of stricter Euro III emission standards on July 1, which pushed up prices by about 10 percent, they added.