Demand for cars moving into a slower lane

Consumer demand for vehicles in the next few months will be weaker than at the beginning of this year, according to the 2014 China Auto and Auto Parts report released on Wednesday by UBS Securities Co Ltd.

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Passenger vehicle shipments will expand 11.8 percent in 2014, and sales of all types of vehicles will rise 10.7 percent, the report said. Production capacity for passenger vehicles will increase 12 percent this year.

The contribution to sales by coastal cities, which have been leading growth in Chinese vehicle sales, is reaching a "tipping point" of about 55 percent. UBS said that the contribution of these cities will cease its rapid growth, and inland regions will start to take a larger market share.

In terms of absolute purchasing power, China can theoretically post another decade of annual growth of 15 to 20 percent for vehicle sales, based on what happened in Japan and Europe.

In those markets, auto sales rose exponentially when the average price approached three times per capita GDP, explained Hou Yankun, head of Asia auto research at UBS.

"Such rapid growth is very hard to sustain, largely due to the serious smog ... plaguing most of China and the traffic congestion. People will get the idea that it's better to use mass transit as much as possible," said Hou.

According to Fourin Inc, a Japanese research firm specializing in the vehicle industry, there are more than 700 cars for every 100 kilometers of road in Beijing. The number is about 400 in Shanghai. There are 300 cars for every 100 km of road nationally.

"It can be expected (within four years) that there will be some 600 cars for every 100 km of road. But the roads won't expand accordingly. Therefore, infrastructure will be the bottleneck for the continuous rapid growth of China's automobile industry," said Hou.

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