So far this year, automobile sales in China have stood out as a bright spot within the economy, growing more than 20% year-on-year throughout 3Q 2016. A tax cut implemented in late 2015—and set to expire at the end of 2016—led to outperformance of smaller passenger car sales, causing consumers to advance purchases in time. Rollback of these incentives would point to weaker growth in auto sales over the next two years. Tightening toward the property sector may also soften consumer demand for cars in the short term, given the typical
correlation between these two big-ticket purchases.
Structural changes in the auto industry, more fuel efficiency incentives, and changes in the composition of China’s fleet may suggest a weaker short-term linkage between auto sales and China’s energy and steel demand, even though the long-term relationship holds. Despite strong auto sales growth this year, gasoline and diesel demand have softened considerably.
