Auto industry sees road blocks in China

A weakening economy, congestion and pollution are all curbing the need for cars out East

Carmakers have long seen a road paved with gold in China. The country currently accounts for almost 25 per cent of global car sales, and Chinese buyers have a fondness for foreign brands. (Volkswagen has the biggest auto-market share in the country.) For the past two years, however, Chinese auto sales have been slowing down sharply. Last month, growth in the industry was just 3.7 per cent, down from 11 per cent in July. Two years ago auto sales were growing by a healthy 32 per cent. By 2011 that number had dropped to 5.2 per cent.

The worrisome figures come at a time of general turmoil in the world’s second-largest economy. This month, China’s economic growth has been its weakest since the global financial crisis began in 2007—unsettling news for automakers who are banking on growth in China’s auto sector amid weak demand in the United States and Europe. By 2007, mostly foreign companies had invested $25.5 billion in the market, and in 2009, China overtook America to become the world’s largest auto market.

While the weakening economy remains a chief concern, automakers are facing yet another threat: the government. In July, Guangzhou became the fourth city in China (after Beijing, Shanghai and Guiyang) to limit auto sales in an attempt to halve the number of cars on the road in an effort to fight congestion and pollution problems. The crackdown could eventually do more than just hurt local sales for automakers. Anthony Faria, director of the office of Automotive Research at the University of Windsor, says excess production in China could eventually result in the country exporting product to North America, undoubtedly hurting plants in Canada and the U.S.

Nevertheless, Faria still calls the possibilities for the country’s auto sector “just mind- boggling and overwhelming.” There is currently one vehicle on the road for every 100 people (in America, the ratio is 78 to 100) and given the population of 1.3 billion, Faria says even a relatively modest 10 per cent growth rate makes the country “exceedingly important” to automakers.