China passenger vehicle sales likely to decline: Fitch

BEIJING - China's passenger vehicle (PV) sales are likely to decline by low-single-digits in 2019 as a recovery in demand is likely to be mild in the second half of the year, Fitch Ratings said in a new report.

Fifteen local governments said they would adopt early the "China 6" emission standards with a short transition period, which exacerbated the demand/supply imbalance as some consumers avoided higher polluting "China 5" vehicles due to potential obstacles of vehicle registration, shorter lifespan and lower residual value in second-hand markets, while newer "China 6" vehicles were in short supply, the ratings agency noted.

It expected policy stimulus to help PV sales growth pick up after a record low in the second quarter of 2019.

Chinese regulators have released the 2019-2020 consumption upgrade stimulus measures in June, allowing local authorities to relax purchase restrictions on internal combustion engine vehicles (ICEVs) in nine major cities, including Guangzhou and Shenzhen.

Fitch estimated additional PV sales of 200,000 to 250,000 units in 2019 if the nine cities increase their ICEV licence quota by an average of 25 percent in June-December 2019 from the full-year 2018 quota, which would represent about 1 percent of China's total PV unit sales in 2018, according to the report.

"We think the policy stimulus will have limited impact on demand in lower-tier cities and rural areas where demand has been excessively pulled forward by tax incentives in 2015-2017," the report said.

The agency predicted that Chinese automakers and dealers would remain under profit pressure in the near-term from the continued destocking of "China 5" inventories.

Dealers have suffered significant profit pressure from the destocking, but we expect manufacturers to repurchase some inventories and offer additional dealer subsidies to alleviate the strains on dealer cash flows, the report said.