Cars at an auto market in Zhengzhou, Henan province. China's automobile market is cooling after the expiration of the government's two-year incentives. [Photo/China Daily]

But analysts say slowdown marks return to sustainable growth

BEIJING - China's automobile market continued to slow down with further negative month-on-month passenger vehicle sales growth in May, sparking concern that it may have difficulty reaching its previous sales target of 20 million vehicles this year.

In May, sales of cars, sport utility vehicles (SUV), multipurpose vehicles (MPV) and minivans dropped by 6.1 percent from the previous month to 1.01 million units, according to statistics released by the China Passenger Car Association (CPCA) on Wednesday.

Year-on-year, China's total car sales edged up by 0.3 percent.

Cui Dongshu, deputy secretary-general of the National Passenger Car Information Exchange Association, said China's automobile market is cooling after the expiration of the government's two-year period of incentives, including a reduced purchase tax and subsidies to trade-ins.

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"Soaring gas prices and parking fees, purchasing restrictions in big cities and the earthquake in Japan have deepened the downturn," said Rao Da, secretary-general of CPCA.

He added that China's auto market might report the first negative whole-year growth rate since 1992.

"The auto market's contraction is inevitable," the association said in a statement on its website.

Dong Yang, vice-chairman of the China Association of Automobile Manufacturers, agreed, saying China's vehicle market may have difficulty meeting the industry's previous expectation of 10 to 15 percent year-on-year growth in 2011.

However, both Dong and Rao said the slowdown, after the sector's staggering growth in the past two years, is a rational regression to healthy and sustainable development.

"Although the growth rate dived sharply, the total sales numbers remain large," said Rao. "The sales will continue to expand through natural demand, just not as fast as in the past two years."

The expiration of government incentives, launched in 2009 to encourage vehicle purchases during the global financial crisis, has seriously affected the minivan segment, a major contributor to sales growth of the past two years. The segment again reported negative growth of 14.8 percent month-on-month in May.

General Motors, the largest foreign automaker in China, reported the first negative year-on-year sales growth in the nation in May, with total sales of 190,674 units, down 2.6 percent over last year, without robust sales of its minivans.

The Wuling-branded minivan series contributed more than half of its total sales of 2.35 million units in 2010.

Affected by the earthquake and tsunami on March 11, Japanese automaker Honda Motor Co Ltd reported a 31.6 percent sales decrease in China in May, its second consecutive month of negative growth. The reduced sales of 27,204 units have been attributed to the shrinking output due to a shortage of parts from Japan.

That shortage also affected Japan's Toyota Motor Corp, which saw negative year-on-year growth of 35 percent in China, with 38,500 units sold in May.

Cao He, an analyst with China Minzu Securities, said that Japanese automakers still need five to eight months to recover from the dual disasters, adding that the parts shortage will also affect the production of some Chinese automakers.