China November Auto Sales Surge 18% as Tax Cut Bolsters Demand

Updated on
  • `Off-the-chart' smog, unusual cold spur vehicle purchases
  • Auto sales surge most in nine months, led by sales of SUVs

An unseasonably cold November and heavy smog prompted Chinese consumers to step up their vehicle purchases, driving automobile sales to their biggest gain in nine months and underlining the challenge the government faces in controlling air pollution.

SUVs continued to be the most popular choice last month, followed by minivans, while sedan sales fell, according to the China Passenger Car Association. Total retail sales of passenger vehicles rose 18 percent last month to 2.02 million, the fastest increase since February.

“Adverse weather conditions played a role in November’s strong sales showing,” according to the association in a presentation accompanying the sales statistics. “The unusual cold was followed by off-the-charts smog levels. Those with children are more inclined to buy cars, given the perception that the air inside a vehicle is cleaner.”

A correlation between auto sales and smog levels adds to the challenge that China faces in cleaning up its dirty air. A surge in car ownership in the past decade has been cited, together with coal-fired power plants, as leading contributors to air pollution, prompting the government to impose vehicle registration quotas in major cities and promote emission-free electric vehicles. Even so, the government slashed a purchase tax in October to protect economic growth after auto demand slowed in the first nine months.

“It is ironic that the smog is making people more interested to buy cars,” said Jochen Siebert, Shanghai-based managing director at JSC Automotive Consulting. “It’s funny but it’s logic that we probably won’t understand.”

Air Pollution

Thick smog covered Beijing and much of north China last month in what the official Xinhua News Agency labeled the worst period of air pollution this year, with levels of the most harmful PM2.5 particulates registering beyond what is considered hazardous to human health.

The smog has yet to abate. Beijing raised a red alert to warn of the dangers associated with extreme pollution levels Monday, the first time the alarm has been raised to its highest level since introduction of an emergency air-pollution response system in 2013. The warning prompted the city government to order schools and some factories to shut and about half of the cars off the roads.

Still, some analysts see the tax cut and discounts by automakers as the primary driver for November’s surge in sales. The government in October cut a 10 percent purchase tax by half for vehicles with engines with displacements that are 1.6 liters or smaller.

“I don’t believe pollution is a factor, as there was pollution in previous years,” said Yale Zhang, Shanghai-based managing director at Autoforesight Shanghai Co. “It’s the purchase tax cuts that made sales go up so much.”

Great Wall Motor Co., the country’s largest SUV maker, is benefiting from the resurgent demand. Sales of its sport utility vehicles, many of which qualify for the tax cut, surged 25 percent in November from a year earlier.

— With assistance by Alexandra Ho

Before it's here, it's on the Bloomberg Terminal. LEARN MORE