8 avr 20

China jumpstarts automotive industry

After the massive drop in car sales during the first trimester of 2020, China has put its mind to reactivating an industry that counts for 10% of its GDP. Most of the car and parts plants have restarted now, at least outside of Hubei Province and Government has announced incentives to make sure that production will turn into sales.

Subsidies for EVs

In order to support demand, some of the tax breaks that were scheduled to expire by the end of 2020, will be extended until further notice. Some of the local Governments have, in addition, allocated millions for consumers to trade in their old ICE cars for New Energy Vehicles (PHEVs and BEVs). The measures are part of a larger activation scheme, that also includes gift certificates for people to start consuming again.

New demand is found from people who are now, afraid of contamination, preferring to commute with their own vehicles rather than using public transport. According to a representative of a Japanese OEM in China (source: Nikkei), sales are picking up in dealerships.

License Plates

China is well known for restricting access to license plates via auctions or lotteries, especially in the bigger cities. In order to reactivate car sales, many local Governments are now issuing large numbers of plates; Beijing, for example, will be releasing 100.000 extra plates.

The plates however will only be available for electrified cars, which will enhance the country’s push towards low-emission vehicles.

Global Context

The main question for an export-heavy country as China remains: if China is back in business, who will be buying its products? Even if China can count on its large population, roughly 20% of its GDP is generated by export.

Previously, China has overcome global crises by investing trillions of dollars into infrastructure projects, credit creation and borrowing power. This, and a slowed-down 2019, has left the country’s economy fragile and highly indebted. Without recovery of the global economy, it’s hard to imagine how China will be financing growth. The 6.1% GDP increase of 2019 is off the agenda for 2020: World Bank predicts 2.3% growth, which will come at a heavy cost for the world’s second largest economy.

Authored by: Yves Helven