Sales of new cars in China, today the world’s largest automobile market, plunged a dramatic 16.4% in May, making the worst month in the history of the relatively new China auto industry. According to the China Association of Automobile Manufacturers (CAAM), the disastrous May sales came after declines of 14.6% in April and 5.2% in March. It is questionable if this can be blamed on the US-China trade war. The depression in China vehicle sales, however, is having a significant impact on foreign automakers, especially in Germany. Could this China turn presage a major new global economic recession or worse?
One indication that the US trade war is not the main cause is the fact that May 2019 marks the 12th consecutive month of auto sales decline in China. Sales between automakers in China and car dealers were down 44%. Moreover, domestic sales of Chinese brand autos in May were down a significant 26%. Baojun, Dongfeng and Trumpchi are Chinese brands that have fallen 40% so far this year. Only Japanese Honda and Toyota could show sales increases. Clearly something major and not good is afoot in China, the world’s second largest economy.
A clue to what is driving (pun intended) the drop was given by Xu Haidong, CAAM’s assistant secretary general. He said, “a decline in purchasing power in the low-to-middle income groups as well as expectations of government stimulus to encourage purchases” was a major cause.
What the “decline in purchasing power in the low-to-middle income groups” means is the worrisome point. As I noted in an earlier piece, the years of Chinese prosperity, much like in the West, have been driven by easy credit, especially since the global financial crisis in 2008.
In 2009 China became the country producing the largest numbers of autos in the world. Many are US or Japanese or EU brands with Chinese production factories. Its car output since a decade has exceeded that of the USA and Japan combined, as well as that of the entire EU. By 2010 China was producing almost 14 million vehicles annually, largest of any nation in history and most of it for its “low-to-middle income” domestic market. China’s middle income earners saw car ownership as essential,