Is China’s 14-month car crash at an end?

After more than a year of declining sales, the country’s auto industry has relief in sight. Beijing’s ruling State Council told city governments to loosen or cancel restrictions on new car sales designed to limit congestion, as part of a package of measures announced Tuesday to get sputtering economic growth back on track.

The news put some octane in the tank of mainland automakers. Shares in Guangzhou Automobile Group Co. and SAIC Motor Corp. surged. On the MSCI China Automobiles index, only BYD Co. and BAIC Motor Corp. failed to gain ground Tuesday. Both have invested heavily in electric vehicles favored by existing rules, so may lose out from a policy change.

There’s just one problem with the euphoria: Ultimately, local governments will choose what to do, and their reasons for rationing private vehicle use haven’t changed.

As we’ve written, the basic justification for China’s restrictions on car use are a matter of capacity. The country just doesn’t have sufficient road space to accommodate car ownership on the scale of the U.S., Japan and western Europe. That’s especially the case when you consider that the Tier One cities of Beijing, Tianjin, Shanghai, Guangzhou and Shenzhen are already more densely populated than Tokyo (and far more so than cities in the U.S. and Europe). They’re also set to add millions of internal migrants over the coming decade.

The restrictions – limiting sales to those who’ve received ownership licenses under a quota system, and banning driving on alternate days – are already widespread. Even Guiyang, the relatively sleepy capital of dirt-poor Guizhou province, operates a buyers’ quota. 


The State Council’s urging is having some effect. Guangzhou and Shenzhen have increased their quotas in recent months, according to Caixin Global. But the same is unlikely to happen in Beijing because congestion is too bad, Caixin reported, citing a source close to the city government.

That gets to the heart of the problem. China’s cities aren’t controlling car use for the sake of it, but because they’re trying their best to deal with profound problems of congestion and pollution as populations and incomes rise.

They also have to look after their investments. Chinese cities built 653 kilometers (406 miles) of new metro networks and 94 kilometers of new light rail in 2018 alone, equivalent to about twice the length of the New York subway. In total, 35 cities had a total of 5,761 kilometers of track between them at the end of last year, enough to stretch from Beijing to Moscow. Paying back all that spending will depend on keeping up ridership, so there’s no strong incentive for city governments to encourage travelers to switch to the roads.

Indeed, looking at the rest of the State Council’s announcement you could be forgiven for thinking that the policy was drafted to encourage gentrifying inner-city hipsters rather than suburban drivers. The car recommendation forms just one of 20 proposals on the list. Far more prominent, in aggregate, are suggestions for building pedestrian areas, setting up night markets and urban festivals, building fitness centers and entertainment precincts in former factories, regenerating depressed districts, and offering credit and support for buying green appliances and electric or hybrid cars.

Even the deepest declines come to an end eventually. It wouldn’t be surprising if China’s car sales do start to gradually recover toward the end of the year, not least because the year-earlier comparisons are more flattering now that they’re being set against the grim results from the second half of 2018, rather than the strong figures from 2017. 


Nonetheless, China’s auto industry is facing up to the demand peak that richer nations encountered a decade or more ago. This market isn’t about to hit a brick wall – but it’s running out of road.

To contact the author of this story: David Fickling at dfickling@bloomberg.net

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

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