The new year has seen an end to the Chinese government’s sales tax incentive on small vehicles at the same time that Beijing brings in new measures to restrict vehicle registrations in the city. The measures underline the extent to which the Chinese government influences the domestic market, however most predictions are still calling for solid, if slower, growth in 2011, particularly for the premium car segment. Shipping lines and logistics providers are also expecting healthy growth, along with ongoing bottlenecks in the supply chain.
 
Incentive measures including consumption-tax rebates, subsidies for rural car buyers, and savings offers to trade in older models helped China’s industry-wide vehicle sales jump 34% during the first 11 months of 2010, on pace to finish the year close to 18m units, a world record for sales.
 
But at the end of December, the government announced that the cut in sales tax was over. Taxes on vehicles with engines of 1.6 litres or below are now back to 10% for 2011, from 7.5% in 2010 and 5% in 2009.
 
And from the start of January, the city of Beijing has imposed restrictions on the registration of new vehicles, with city authorities stating they will only allow 240,000 vehicles to be registered this year, one third of last year’s total.
 
The move, which is designed to ease congestion and air pollution in the capital, will reduce the average number permitted per month to 20,000. While these limits are expected to hit local dealer sales, Beijing accounts for only 5% of mainland car sales, according to a report in the Financial Times.
 
The authorities have instituted a draw system for individuals who are allowed to submit one vehicle registration application and who must prove that they are local Beijing residents or have been working in the city for at least a year. The first draw, which is held on January 23, attracted 60,000 applications in the first three days of January.
 
It may be too early to tell what impact these moves, combined with other potential measures by the Chinese government to prevent an overheated economy, could have on the growth of new vehicle imports during 2010, which had grown by more than 100% in the first three quarters of the year. K-Line, which confirmed “huge increases” on vehicle flows from Europe and the US to China in 2010, was confident that that the increase would continue in the years ahead, but could not confirm the impact of the new restrictions.
 
“It really is too early to tell if these new restrictions will have any effect at all. Until now the forecasts of the OEMs have not been adjusted and still show growth,” said Peter Menzel, the company’s director and general manager for the Car Carrier Group.
 
A slowdown on growth was to be expected in 2011, according to Menzel, as local production increases and new plants come on line for the major European OEMs in the country.
 
However, the end of incentives should have less impact on the luxury car segment, which was a major driver of the import growth in 2010 and which continues to be a boon for premium European brands including Mercedes, BMW, Audi and Jaguar Land Rover. Demand for vehicles and parts in China continued to outstrip supply, according to Daimler’s CEO Dieter Zetsche in an interview with the German press at the end of December. According to Zetsche, Mercedes consumers in China (as well as the US) are experiencing delivery delays of up to three months as the carmakers suppliers struggle to keep up with demand generated in those markets.
 
“We are facing a luxury problem,” Zetsche is quoted as telling the Frankfurter Allgemeine Sonntagszeitung, adding, “How do we get all the parts we need in time?”
 
Besides ramping up local and export production, in 2011 Daimler will also change its distribution strategy for China from a pull to push model. According to Daimler’s head of worldwide vehicle transport, Egon Christ, as reported in the latest issue of Finished Vehicle Logistics, (to be published shortly at www.fvlmagazine.com). Daimler will now control distribution through the port of entry in China and from domestic factories all the way to dealers; in the past dealers took responsibility from ports and factory yards. The change, will allows the carmaker more centralised control over the distribution chain, mirrors a similar approach by BMW (read more here).

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