Thursday, January 29, 2009

China's Auto Stimulus Having an Effect

Anecdotally, at least.

After a tough 2008, this dealership in Beijing is working overtime to satisfy demand for small cars. The dealer says that he regularly sold about 10 cars a day in 2006 and 2007, but his average dropped to only four in 2008. Since the announced tax cuts on smaller cars went into effect on January 20, he has returned to his average of 10 cars per day.

If this phenomenon is repeating itself throughout China, it could provide quite a boost to its flagging GDP growth.

This seems especially significant in light of the historical seasonality of car sales in China. The graph below is from an auto industry analysis provided by Shanghai Securities Co., Ltd. (乘用车市场需求仍相对较好, 20 January 2008).



Note that there is traditionally a significant dip in sales every February, followed by a big increase in sales every March. If dealerships all across China are currently experiencing a surge during what should be their lowest sales point of the year, then this gives reason to believe that the tax cuts are having their intended effect.