Outlook 2011: China Says No More Cars, Down Goes the Auto Industry

Tuesday, December 28, 2010
By Paul Martin

By Dian L. Chu
ZeroHedge.com
12/27/2010

While the world is still unwrapping the surprise Christmas gift from China in the form of a interest rate hike of 25 basis points, this other piece of news with ample implication to the auto industry seems to have gone largely under the radar–The City of Beijing will limit the number of new license plates issued in 2011 to 240,000 to help control traffic congestion. Xinhua reported that car buyers in Beijing will have to draw lots before obtaining a vehicle license plate.

Beijing – An Auto Gold Mine

In 2009, Chinese government introduced tax incentives for cars with engine sizes of 1.6 liters or smaller. The move propelled China to the world’s biggest auto market that year, surpassing the United States. The trend has continued in the first 11 months of 2010–automakers in China shipped a total of 16.4 million vehicles, up 34% year-over-year.

Beijing is China’s largest auto market and regarded by auto manufacturers as a gold mine. Statistics from the Beijing Municipal Commission of Transport show that the city’s total number of automobiles stood at around 4.8 million, up almost 85% from 2005.

Carriage Before Horse

The problem is that the Chinese government is putting the carriage before the horse–encouraging consumers to buy cars without building enough roads and parking lots to support the auto boom. This problem is not unique to the city of Beijing, although it is the first resorting to this somewhat drastic measure to alleviate its horrendous traffic situation.

50% Drop in New Car Sales

With this new vehicle limit, China Automobile Dealers Association already came out with estimate that new car sales in Beijing are likely to decline 50% to around 400,000 next year.

Although this policy is only implemented in Beijing, it could have great influence over other large cities as Beijing is hardly the only city with poor urban planning suffering from the Great Traffic Jam, which could be a huge blow to the auto industry.

The Rest…HERE

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