Dark road lies ahead for car makers

By Jin Jing  |   2008-7-23  |     NEWSPAPER EDITION

---

AUTO sales data released last week showed that the once buoyant market has hit a downturn.

With tight monetary control and natural disasters slowing China's gross domestic product to 10.1 percent in the first half of this year, car sales also grew at a slower pace, especially since the second quarter.

Most analysts believe that the auto industry, one of the main drivers of China's economic development, will remain upbeat but face tougher challenges.

China's Association of Automobile Manufacturers announced last Tuesday that the nation's vehicle sales expanded by 18.5 percent to 5.18 million units from January to June from a year earlier.

The growth is 4.78 percent slower than the same period last year.

Car sales saw a sharp decline in growth. The country sold 2.66 million cars in the first six months, 16.7 percent more than the same period last year.

The growth rate, however, was nearly 10 percentage points lower than the 25.9 percent recorded at the same time last year.

Various factors triggered flat sales.

China adopted tight monetary controls in the second half of last year to combat the rising yuan, increasing cost of raw material and labor costs.

It also raised the reserve requirements for banks to tame record high inflation after the snowstorm and earthquake.

Tighter controls on the economy and commercial credit began to affect growth and led to the decline in the share market, which tumbled nearly 50 percent so far this year. And slower property sales have also dented consumer confidence.

Fuel price rise

But the 17-percent price rise for gasoline in June had an immediate negative impact on car sales.

Amid the gloomy economy outlook and limited purchasing power, many would-be buyers canceled their purchase plans or decided to wait and see.