China's auto industry is changing from explosive growth to stable growth

On November 28, Chen Qingtai, the deputy director of the Development Research Center of the State Council, spoke at the "China Automotive Industry Summit" hosted by China Europe International Business School. He highlighted that China's auto industry is transitioning from a phase of rapid, explosive growth to more stable and sustainable development. Chen pointed out that many Chinese consumers now have the financial capability to buy cars, and previously suppressed demand has gradually turned into actual purchasing power. After joining the WTO, people's spending power has increased, and the widespread herd mentality among Chinese consumers has fueled a surge in car purchases in certain cities. This trend contributed to a significant rise in automobile production and sales in 2002, with total output increasing by 36.7%, car production growing by 85%, and SUVs surging by 180% in 2003. However, this rapid growth led some companies and investors to overestimate the market potential. "They treated this temporary phase as a long-term trend and made overly ambitious investment plans," Chen noted. According to recent data from the National Development and Reform Commission, China’s current vehicle production capacity stands at 8 million units, with an additional 2.2 million under construction, expected to reach 10.2 million once completed. Despite the shift to stable growth, many investors remain overly optimistic. Chen also shared statistics showing that the current investment scale could reach 10 million vehicles. However, with fierce price competition, the utilization rate of production capacity has dropped to around 55%. Although sales rose by 17.9% in the first nine months of the year, profits fell by 52.9%, with 15 automakers reporting losses and eight others experiencing declining profits. Only three companies saw an increase in earnings. "After going through such market fluctuations, we need to assess the Chinese auto market objectively and make calm judgments," he said. He emphasized that the previous explosive growth was driven by short-term factors, while long-term trends are based on steady increases in per capita income. Drawing from experiences in developed countries, he explained that when per capita GDP reaches $1,000 to $2,000, a country enters the era of mass car ownership. According to research, a 1% increase in GDP leads to a 1.02% to 1.95% rise in car consumption. Once per capita GDP exceeds $2,000, car ownership growth peaks. Currently, China’s car ownership per thousand people is below 20% of the global average, especially compared to similarly developed nations. Despite China’s overall per capita GDP being just over $1,000, regions like the southeastern coastal areas—home to about 200 million people—have per capita GDP exceeding $2,000, even reaching $3,000. These areas are witnessing a sharp rise in car demand. As the economy grows from east to west, more people across urban and rural areas will join the car market, driving long-term growth in automobile consumption. Looking ahead, Chen predicts that by 2020, China’s GDP will grow at an annual rate of over 7%, with per capita GDP rising from $1,000 to $4,000. During this period, expanding domestic demand and policy support for consumer spending will drive sustained growth in the auto sector. The growth rate will slow from 20% to around 10% annually. By 2020, China’s car ownership per thousand people is expected to approach the current global average. According to calculations, China had approximately 35 million vehicles in 2005, with a demand of 5.5 million. By 2010, the number of vehicles is projected to reach 60 million, with demand at 9 million. In 2015, it could hit 95 million, and by 2020, 140 million vehicles are expected, with demand reaching 16 million. "It is certain that China will become the fastest-growing and most demanding automobile market in the world," Chen concluded.

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