China’s Auto Output and Sales Plummet in January Despite Local Government’s Purchase Incentives

Visitors look at a Hongqi H6 on the opening day of the 20th Guangzhou International Automobile Exhibition in Guangzhou, China, on Dec. 30, 2022. STR/AFP via Getty Images

Despite multiple stimuli such as price cuts and government-issued consumer vouchers, the Chinese auto market started the new year on a gloomy note in January, with both manufacturing and selling being heavily shrunken.

This January began with a double-digit decline in auto output and sales, mainly pertaining to passenger cars, and demand for commercial vehicles also remained sluggish, said The China Association of Automobile Manufacturers (CAAM) in a data release on Feb. 10.

According to CAAM, China’s auto market saw output and sales of 1,594,000 and 1,649,000 units, respectively, in January, dramatically decreasing by 33.1 percent and 35.5 percent, respectively, from the month before, and a 34.3 percent and 35 percent drop from last January.

Although this January coincides with the Lunar New Year, a usual consumption peak for the Chinese people, the output and sales figures were still unable to compete with the previous Lunar New Year month. For example, compared with February 2019, before the onset of the COVID-19 pandemic, it decreased by 12.1 percent and 5.1 percent, respectively; when compared with February 2022, it declined by 13 percent and 11.3 percent, respectively.

A car sales statistic in January published by China Passenger Car Association (CPCA) showed retail sales were 332,000 units, down 6.3 percent from last January and 48.3 percent from last December, among which, passenger vehicle retail sales of 1.293 million units fell 37.9 percent from last January and 40.4 percent from last December, the lowest value in January since this century. In particular, the wholesale sales of new energy passenger cars reached 389,000 units, which fell 7.3 percent from last January and 48.2 percent from last December, according to a Feb.9th report by Chinese financial media Securities Times.

CAAM blamed the lag of auto consumption on “the lack of domestic effective demand,” saying that the market was affected by the Chinese Lunar New Year holiday and overdraft of consumer demand in January, coupled with the government’s withdrawal of subsidies for traditional fuel vehicle purchase tax and new energy vehicles.

Local Stimulate Program for Auto Market

Multiple local authorities launched auto vouchers in hopes of stimulating spending during the Lunar New Year. Given that automobiles are the largest industrial product in residents’ expenditure, “local governments are using the issuance of auto consumption vouchers as a vital means to boost domestic demand,” the state-owned Chinese media said.

Tianjin, a city 137 kilometers (85 miles) southeast from Beijing, deployed 60 million yuan (about $9 million) of subsidies for local car consumption effective since Jan. 11, while the city of Zhengzhou, in central Henan Province, had disbursed such subsidies earlier, on Jan. 5.

Automakers were also using the long holiday as a business opportunity to boost sales. For example, Jiangling Ford Motor Technology (Shanghai) unveiled a series of new products between Jan. 1 and 20; SAIC Motor’s subsidiary Feifan Auto lowered prices twice between Jan. 9 and Feb. 2; and Seres Group offered discounted prices for part of models on Jan. 13.

But all these efforts, by either the government or the automakers, are unlikely to reverse the downward trend in China’s auto industry and market. Even the official media and data, which tend to portray a good economic outlook, had revealed a partial auto recession in the country.

An industry insider expressed concerns over the Chinese car market prospects in 2023: “If we look at the purchasing power in January, car sales would be expected to drop significantly for the coming whole year,” as reported by the Chinese portal site Sina on Feb.11.