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Expect Continued Contraction in Chinese Auto Demand

DuckerFrontier, July 11, 2019

DuckerFrontier recently launched The Lens, a weekly newsletter published by our Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Below is an excerpt from this week’s edition highlighting forecasts for the Chinese auto industry in H2 2019.

Key Takeaways

Chinese automotive companies heavily discounted products in Q2 to clear out automotive inventories that did not conform to a change in state emissions standards that went into effect July 1. China’s 2019 stage VII emission plan, made public in early June, calls for an adjustment from the EU emissions model to California’s more severe emissions standards. These auto discounts (up to 50% in some cases) created an artificial uptick in the June data, though passenger vehicle sales remained weak despite these discounts.

Our View

The recent uptick in auto sales is only a blip in the data, and will regress to previous declining trends for Chinese auto sales. Emissions policy changes, made public mere months before the July 1 deadline, have hurt and will continue to hurt foreign and domestic auto companies in H2 2019 due to inventory loss. Lowered overall sales and loss in unsold inventories due to falling consumer demand will lead to decreased demand for auto part imports.

Business Implications

We expect Chinese demand for autos to continue to contract in H2 2019. International firms exporting auto parts to China will likely see a decrease in demand from domestic Chinese auto companies, which were harder hit by changing regulations, in H2 2019.

Emilie Newton, Junior Analyst for Global Economics and Scenarios

FrontierView clients: See our most recent China Monthly Market Monitor update for further insights

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