With all the talk about weak car sales in China, we highlight the charts below. It is true that car sales are down a lot when measured on an annual basis. The year-on-year rate is above -10%. However, this is largely due to the ‘base effects’ of the run-up in car sales at the end of 2017, as a tax cut on smaller engine cars was rolled back at the turn of the year. Hence, the year-on-year comparison for December 2018 is against an elevated level in 2017. After coming down sharply at the turn of the year, the level of car sales (seasonally adjusted) has actually increased gradually, although it is still below the medium-term trend line.
What do we expect to happen in coming months? We believe are likely to see a big increase in the year-on-year rate for two reasons. First, the fall in car sales in January and February 2018 gives a much lower base to compare with. Hence, even if car sales are unchanged on a monthly basis in coming months at around 28 million cars (annualised), the year-on-year rate would rise to above 10%. Second, the Chinese leadership has flagged that stimulus aimed at auto sales and home appliances is coming. This could very well give a lift to the level of car sales.
The bottom line is that after being a big drag on annual consumption growth at the end of 2018, car sales are set to give a boost to consumption growth in Q1 when measured in year-on-year terms.
