x Abu Dhabi, UAEWednesday 26 July 2017

China takes to four wheels with gusto as subsidies, tax breaks spur car sales

International The days when the bicycle ruled the streets of China's cities are a distant memory.

A worker walks past a Polo car at a production line in Shanghai Volkswagen Automotive Company. One out of every 120 Chinese now own their own car.
A worker walks past a Polo car at a production line in Shanghai Volkswagen Automotive Company. One out of every 120 Chinese now own their own car.

BEIJING // The days when the bicycle ruled the streets of China's cities are a distant memory - these days the car is the undisputed king of the road. And the country's booming vehicle market is propping up an industry that is flagging in the rest of the world. Car manufacturing is a pillar industry in the economy, and owning a vehicle is a potent symbol of China's expanding wealth, so it is very much by design, not accident, that the country has overtaken the US as the world's biggest market.

The sale of passenger vehicles rose 70.5 per cent last month from the same month a year earlier, the biggest gain since January 2006, with the rush to buy cars spurred by tax cuts and government subsidies, part of the state's 4 trillion yuan (Dh2.149tn) spending plan aimed at keeping growth on track in the world's third-largest economy. David Xu, 25, a bank worker, who preferred to give his English name, is getting married next year, and he and his girlfriend have just bought

a house. "Our jobs are stable. So the next step for us, before we get married, will be to buy a car, it's so convenient for our daily lives. I prefer foreign brands costing around 150,000 yuan. Of course, our parents can help us a little with the money. I think the quality of foreign cars is better than domestic ones," said Mr Xu. "And the performance is great. Although some domestic cars are very cheap, the reputation of foreign cars is better. And it's a good time

to buy cars." The US-China comparison makes for grim reading on the devastated production lines in Detroit. China's overall vehicle sales climbed 23 per cent in the first seven months to 7.2 million vehicles. In the same period, US sales fell 32 per cent to 5.8 million. It might be cold comfort, but American cars are still a big draw in China. Shen Guodong, 26, a Beijing policeman, recently bought a Chevrolet Cruze, which set him back 119,900 yuan. "I think the price is OK for me. Nowadays, the car's performance relative to cost is pretty good," he said. "A lot of people I know have also bought cars. And I can afford it. It might not be perfect timing to buy cars, but in my view, if you buy something early, you get to enjoy it early.

"I'm really happy with my red Cruze. In future, if Chinese cars can really compete with foreign brands, that will be the best time to buy a car," said Mr Shen. Car manufacturers sold 832,596 cars, 4x4s and other passenger vehicles last month, the China Association of Automobile Manufacturers said. Overall vehicle sales, including trucks and buses, jumped 64 per cent from a year earlier to 1.09 million.

Car sales have climbed by nearly 50 per cent in the past three months on the back of government incentives, including tax cuts on fuel-efficient cars and incentives for people in the countryside to buy new cars. In April this year, Porsche chose the Shanghai motor show to unveil a new four-door luxury coupe, one of 13 new models rolled out for a hungry audience of wannabe consumers. The China Passenger Car Association has forecast that vehicle sales in the country would grow 17 per cent this year from the previous one, outpacing the

6.7 per cent rise in 2008. Daimler, the world's second-largest luxury-car maker and maker of the Mercedes-Benz line, said last month that its car venture in China broke even last year for the first time, helped by the country's rising demand for premium saloons, and that is was "very optimistic" about sales growth looking ahead. Increased wealth in China has been a big boon to the flagging fortunes of the world's luxury car makers. Mercedes-Benz S-class saloons and top-of-the-range BMWs, Jaguars and even Lamborghinis can now be seen on the streets Shanghai, Beijing and, crucially for long-term growth,

the second-tier cities. It is a long way from the vision of millions of bicycles crushed together on the wide thoroughfares. In June, Daimler was even added to the Chinese government's procurement list. The administration is aiming to trim spending on cars by 15 per cent this year, having spent a 80 billion yuan on official vehicles last year. And its not just high-end cars that are doing well in China.

GM boosted sales 78 per cent last month after rural subsidies spurred demand for minivans, which account for about 60 per cent of its sales. GM expects to form a commercial-vehicle venture with China FAW Group by the end of the year. Meanwhile Nissan, which is also struggling at home in Japan, announced plans with local partner Dongfeng to build a new plant in Guangzhou. The factory will raise their joint venture's total capacity to 700,000 vehicles a year.

Local upstarts like Chery and Brilliance and Dongfeng are increasingly holding their heads high in the domestic market, although they still have to shake off an image that they are less reliable than imports. But Chinese car makers are learning from their joint-venture partners. The local offerings at the Shanghai car show in April have vastly improved in performance and quality from a couple of years ago, and Chinese car firms are now getting ready to start exporting their wares.