Chinese car makers brace for another bumpy ride after tough 2018

Ford was the worst performer among global carmakers in China last year, with its sales shrinking 37 percent. (AFP)
Updated 14 January 2019

Chinese car makers brace for another bumpy ride after tough 2018

  • Companies such as homegrown Geely and Britain’s biggest carmaker Jaguar Land Rover have in recent days flagged caution about China sales in 2019
  • China’s state planner has said it will introduce policies to lift domestic spending on items such as autos, without providing specifics

BEIJING: Carmakers in China are bracing for zero to tepid growth in sales this year, after a tough 2018 when the world’s top auto market probably contracted for the first time in about two decades, as slowing economic growth drags on demand.
Companies such as homegrown Geely and Britain’s biggest carmaker Jaguar Land Rover have in recent days flagged caution about China sales in 2019, hit also by Beijing’s trade war with the United States.
“We should notice the big uncertainties among macro economy and trade tensions, which hit the auto market in China last year and may happen again this year,” Yale Zhang, head of consultancy AutoForesight, said.
China’s top auto industry association expects the country to sell 28 million vehicles in 2019, steady versus 2018, while other government and industry bodies see a 0-2 percent growth.
China’s Association of Automobile Manufacturers (CAAM) is expected to announce later on Monday that the country’s car market contracted in 2018, the first time since the 1990s.
Shares in Chinese carmakers Geely and BYD fell more than 2 percent in morning trade ahead of the data.
Automobile sales in China fell about 14 percent in November from a year ago, steepest in nearly seven years and the fifth straight decline in monthly numbers.
Ford was the worst performer among global carmakers in China last year, with its sales shrinking 37 percent.
Geely, China’s most successful carmaker, sold 20 percent more cars in 2018, but this was sharply lower than a 63 percent growth in 2017. It is forecasting flat sales this year.
Japan’s Toyota Motor, however, bucked the trend, with a 14.3 percent rise in sales in China, versus 6 percent growth in 2017, helped by better demand for its luxury brand Lexus and improved marketing efforts.
The bleak numbers add to worries for investors, already spooked by signs of a broader drop in demand from the world’s No.2 economy, especially after Apple’s rare revenue warning citing weak iPhone sales in the country.
Analysts are, however, counting on measures promised by China to buoy spending as well as rising demand for new energy vehicles (NEVs) to bring some relief.
NEV sales are expected to hit 1.6 million units in 2019, versus 1.2 million in 2018, CAAM has predicted.
China’s state planner has said it will introduce policies to lift domestic spending on items such as autos, without providing specifics. Beijing has also made changes to the income tax threshold to hike incomes and personal spending power.
This could help resolve the industry’s current issues of unsold inventory, drive sales growth and provide relief to the economic pressures China is facing, said Patrick Yuan, Hong Kong-based analyst at Jefferies.
“With that, car sales growth could recover to as high as 7 percent” this year, he said.
According to Alan Kang, an LMC Automotive analyst, demand could also draw support as consumers stop putting their buying decisions on hold in hopes Beijing will reintroduce purchase tax cuts on smaller cars — a policy it phased out last year.
As their hopes for tax cuts “evaporate in 2019,” these consumers will trickle back in, he added.
However, some analysts struck a somber note amid forecasts China’s economy would slow further this year. Data this month is expected to show the economy grew around 6.6 percent in 2018 — the weakest since 1990. Policy sources have said Beijing is planning to set a target of 6-6.5 percent for 2019.


Central bankers face political shocks, and hope to avoid the worst

A man walks past the Federal Reserve Bank in Washington. (Reuters/File)
Updated 22 sec ago

Central bankers face political shocks, and hope to avoid the worst

  • During Fed conference, ‘some seemed intent on steering the wheel toward trouble’

JACKSON HOLE, WYOMING: Global central bank chiefs know their job is to keep the economy out of the ditch. What became clear at the US Federal Reserve’s central banking conference in Jackson Hole, Wyoming, over the past couple of days is that not only do other people hold the wheel, some seem intent on steering toward trouble.
“We are experiencing a series of major political shocks; we saw another example of that yesterday,” Reserve Bank of Australia Gov. Philip Lowe said on Saturday, a day after China and the US slapped more tariffs on each other’s goods and US President Donald Trump called on American companies to shut down their operations in the Asian nation.
As those political shocks slow growth, Lowe said in a panel discussion, “there is a strongly held view that the central bank should just fix the problem ... The reality is much more complicated,” and not something monetary policy can likely repair.
His comments spoke to an uncomfortable truth that hovered over an annual symposium where the mountain backdrop and two days of technical debate often seem distant from the world of realpolitik. Even as central bankers and economists referred to the deep connections that now tie the world’s economies together, a US-driven trade war seemed to be driving them apart and raising the specter of a broad global downturn.
Worse, it’s a downturn none of the central bankers seemed confident about how to fight — coming not from a business- or financial-cycle meltdown that they have a playbook to combat, but from political choices that threaten to crater business confidence.

HIGHLIGHTS

• Even as central bankers and economists referred to the deep connections that now tie the world’s economies together, a US-driven trade war seemed to be driving them apart and raising the specter of a broad global downturn.

• It’s a downturn none of the central bankers seemed confident about how to fight — coming not from a business — or financial-cycle meltdown that they have a playbook to combat, but from political choices that threaten to crater business confidence.

If that’s the problem, Lowe and others said, lower interest rates — something demanded by Trump to get an upper hand in the trade war with China — will do little to help.
“The problem is in the president of the United States,” former Fed Vice Chair Stanley Fischer said at a lunch event on Friday. “How the system is going to get around some of the sorts of things that have been done lately, including trying to destroy the global trading system, is very unclear. I have no idea how to deal with this.”
It was a rare calling out of Trump, though his presence infused other remarks. Fed Chair Jerome Powell, handpicked by Trump to run the central bank but now an object of the president’s ire, noted in his opening speech that the Fed had no chartbook for building a new global trading system.
‘Last moment’
Central banks have asked politicians for years to use fiscal policy more constructively and address structural problems plaguing economies.
What they’ve gotten instead is a fast multiplying set of risks, with the US-China trade war at the epicenter but also including the possibility of a disruptive British exit from the EU, an economic slowdown in Germany, a political collapse in Italy, rising political tensions in Hong Kong, and longstanding international institutions and agreements under pressure.
European Council President Donald Tusk described this weekend’s G7 leaders summit in Biarritz as a “last moment” for its members — the US, Britain, Germany, Japan, France, Italy and Canada — to restore unity.
Amidst all the tumult, and with interest rates across the globe already lower than they’ve been historically, monetary policy may be no match.
“There is not that much policy space and there are material risks at the moment that we all are trying to manage,” Bank of England Gov. Mark Carney said on Friday.