Growth Projection of the Chinese Automobile Market

On Feb 14, I went to Ohta City of Gunma Prefecture to give a public lecture on the Chinese automobile industry. Why are these people at Ohta interested in Chinese automobile industry? It is because Fuji Heavy Industries Ltd., a Japanese car maker which has its main car plant in Ohta, is now negotiating with Chery Automobile about establishing a joint venture in Dalian, China, to produce Subaru-brand cars there. The suppliers which are supplying parts to Subaru need to consider whether to follow Subaru and produce parts for the Dalian car plant or not.
China has become the biggest automobile market in the world since 2009. In 2010 alone, 18.5 million vehicles were sold. China's rise to the top position was precipitated by the sharp decline of US auto market after the financial crisis, but I think China will continue to be the largest in the world in the future.

How many automobiles will be sold every year? Growth projections of the Chinese automobile market always fail. In 1993, the Chinese State Planning Commission asked experts to estimate the size of the market in 2000. Their answer was 2.5 to 3 million units. But the actual sales volume in 2000 was only 2 million. In 2001, the State Economy and Trade Commission estimated that the sales volume in 2005 would be 3.1 to 3.5 million. But the actual sales volume in 2005 was 5.7 million. The history of failed estimates makes me think that there is no difference between sophisticated models and rude models--both are destined to be wrong anyway.

The following is my rude projection: according to my estimation, during the period of 2001-2009, 4.9 percent of the existing stock of automobiles was replaced by new automobiles. In 2010, 3 million units were bought as replacement of existing automobiles, while 15 million units were bought as new addition to the existing stock. Suppose that the amount of new addition will stay at the level of 2010--15 million. The pink line in the figure shows the amount of sales for newly-added demand. Replacement demand will grow, because the stock of automobiles will continue to grow. The blue line in the figure shows total demand, so the gap between the two lines is the demand for replacement.

According to this conservative projection, the size of the market in 2020 will be 26 million units, and that of 2030 will be 34 million.

The reason I took a rather pessimistic view for the new addition is because from January 2011 Beijing City started restricting the number of new issues of number plates. It is reported that new issues in Beijing will be reduced from 750 thousand in 2010 to only 240 thousand in 2011. This means that automobile sales will be reduced by half a million units by Beijing's restriction. Shanghai has already introduced similar restrictions in 1994. Because traffic jam is becoming a serious problem in many other cities, it is likely that some other cities will follow suit. The demand for automobiles may be severely suppressed by such restrictions in the richest cities in China.

(I will continue writing my views on Chinese automobile industry in my following posts.)