Auto market slump reaches China; car makers seek bail-out

21 November 2008

The perils of economic liberalisation are now playing out in communist China where the country's big auto companies are getting into the Detroit Big Three act, though in a muted way. 

The Chinese car market, which grew at 24 per cent or thereabouts annually from 2001 to 2007, slowed down by a few percentage points in September this year and is expected to slow down further as the economy slows. Many Chinese car companies have reported flat or even negative sales in the second quarter of 2008-09.

And, just like US car companies, which have received $25 billion in loans first to increase green research and has now sought an additional $25 billion in loans to cope with a recessionary economy, Chinese car manufacturers too want help from their government due to slumping sales.

Although car sales in China fell in September by a couple of percentage points to 750,000 a month, car makers increased deliveries of new cars to dealerships by 10 per cent to keep factories busy and to avoid lay offs. Retail sales figures for October are expected to fall further, which could force these companies to further cut prices as they have been doing for some time.

Although the slowdown in China is not as worrisome as in the West, its problems have largely been imported. China's growth has been fuelled by exports of all kinds of goods to Western countries, many of which are now either heading towards or are already in recession. The top three export markets for fully assembled vehicles are Russia, Ukraine and Vietnam, all of which are grappling with the global financial crisis.

In China, real estate prices have fallen along with the stock market in the past year leading to tightened liquidity amongst consumers. Along with this, the Chinese government has not reduced fuel prices despite the recent decline in world oil prices.