China’s new-vehicle market to remain sluggish in H2 2019 for new State 6 emissions standards

At the Shanghai auto show in April, most of the auto company executives had projected that China’s new-vehicle market would rebound in the second half of 2019. But their prediction seems to be not turning true with Beijing’s resolve to enforce stricter emissions rules and a reluctance to cut taxes on vehicle sales. The sales of new light-vehicles in May also stood low for the 11th straight month, falling 17 per cent to 1.56 million.

The slowing Chinese economy, thanks to the US tariffs, is also one of the factors for which the new-vehicle market fails to resume growth. Another direct cause for the slump is the Increasing number of provinces set to adopt tougher vehicle emissions standards ahead of schedule. Beijing, Shanghai, Chongqing, and Tianjin, along with about two-thirds of the provinces in China, pledged to embrace State 6 emissions standards on July 1, one year before the date set by the Ministry of Environmental Protection.

Consumers in these regions have postponed purchasing new cars as they are not allowed to obtain license plates for vehicles that fall short of the new standards in July. This leaves dealers with high inventories of new cars that can only meet the State 5 emission rules.

However, this ongoing downturn in the market has not stopped Beijing to push more provinces to upgrade to the State 6 rules as part of the Blue Sky Protection Initiative. The economic policymakers are neither considering deploying strong incentives to boost the economy, including the automotive market.

Nonetheless, Beijing has reportedly embraced some steps to boost new-vehicle sales. For instance, it has urged major domestic cities to relax limits on license plates for new cars, especially electrified cars. Meanwhile, the central government has decided to not inject a heavy dose of incentives, as a measure to lift the economy.

China’s economy, which grew 6.4 percent in the first quarter, down from 6.6 percent in 2018, is expected to remain subdued in the near future as the trade war between the world’s two largest economies continues.