- China remains in the midst of a massive economic challenge caused by its zero covid policy, creating the risk of a continued, significant economic downturn.
- To protect a certain level of “bottom-line” economic growth, the Chinese government has implemented two rounds of economic stimulus in May and August.
- However, there are surprisingly few direct measures in these stimulus packages to encourage consumption, except in the automotive sector.
- Extensive policy incentives have been offered to stimulate auto consumption, especially regarding NEVs. Major policies include the extension of NEV purchase tax exemption which accounts for 10 percent of automotive purchasing costs, complemented by a spectrum of regional vehicle purchase subsidies ranging from ¥3,000 to ¥20,000 per vehicle
- The distinction in the political treatment of the automotive sector compared to other sectors showed immediate results in the recent monthly economic data: automotive sales recorded +29.7 percent yoy growth in July 2022, while total consumption only reached +2.8 percent yoy growth
- China’s policymakers, e.g. NDRC, argue that stimulating the automotive sector can generate ripple effects by pushing growth in other auto-related sectors. According to NDRC, the sectors along the automotive value chain account for ca. 10 percent of China’s GDP.
- However, the effects of these automotive incentives are likely to be only short-lived without the foundation of solid economic growth. The automotive sector cannot be exempt from the pessimistic outlook of the Chinese economy in the long term. If the economic policies do not mitigate the overarching economic challenges, automotive consumption will eventually drop.
Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.