Beijing’s New Traffic Curbs Will Harm Vehicle Sales
By Chris Haak
In China today, Beijing’s municipal government imposed some dramatic new rules that will curtail the number of new cars that can be registered in the city starting next year. The headline is that Beijing will limit the number of new car and microvan license plates issued during 2011 to just 240,000, which is about one-third of the number issued in 2010. Also, only registered Beijing residents will be able to obtain a license plate. Further, cars without a Beijing license plate will be prohibited from entering the city’s center.
Yale Zhang, an independent auto analyst quoted in The Wall Street Journal, noted that the move by Beijing would basically cost auto manufacturers a half-million sales during 2011. His math is easy to see: assuming about 720,000 registrations were allowed in 2010, lopping off all but 240,000 to be permitted in 2011 means that 480,000 new cars will not be permitted to register in Beijing, and therefore will not be sold.
For a rapidly-growing auto industry that’s now serving the world’s largest new-vehicle market, losing 480,000 new car sales is a reasonably harsh blow. There will be about 18 million new cars sold in China by the end of 2010, so Beijing’s municipal government just knocked 2.67 percent off of China’s car sales with a single move.
Road construction is proceeding at a rapid pace in China, but it still cannot keep up with the explosion in the number of vehicles on the road, meaning that traffic has gotten progressively worse as China’s emerging middle class takes to the road for the first time. You may recall the 61-mile traffic jam outside Beijing this past summer as an example of the perils of a suddenly-mobile society with an infrastructure ill-equipped to accommodate the influx of new vehicles.
At the time that we reported on the giant traffic jam, we noted that analysts expected 7 million vehicles to be registered in Beijing by 2015. That would have been an enormous increase from 4 million registered there at the end of 2009 and 4.7 million by the end of 2010. With the new curbs in place, that growth rate moderates considerably. Let’s assume the 240,000 vehicle cap remains constant through 2015:
2009: 4.00 million
2010: 4.70 million
2011: 4.94 million
2012: 5.18 million
2013: 5.42 million
2014: 5.66 million
2015: 5.90 million
In effect, Beijing will have removed some 1.1 million new vehicles from its roads through its registration limits. Even with the caps, its’ hard to imagine traffic in China’s capital getting any better anytime soon. With the caps, going to 6.2 million vehicles from the estimated 5 million today would still be a 24 percent increase.
The Beijing limits, however, aren’t the only problem these days for China’s automakers. The heady days of 30, 40, or even 50 percent growth year-over-year may be coming to a close. It’s entirely possible that other Chinese municipalities may follow Beijing’s lead and impose similar limits on automobile registrations, with the objective of slowing the growth of traffic congestion. If that came to pass, automakers selling new cars in China would have far larger problems than the 480,000 potential lost sales in Beijing in 2011.
The new-car market in China was projected to grow at “only” a 10 percent clip in 2011 even before the change in registration rules were announced (though limits, albeit not as restrictive, were anticipated by many), with the slowdown in growth due in large part to the fact that incentives on new small vehicles are ending on December 31. Industrywide sales in China were up 26.9 percent in November over the year-earlier period, but part of the increase was caused by consumers attempting to pre-empt the 2011 limits, and part was caused by consumers attempting to take advantage of incentives before they expired.
It remains to be seen whether the limitations will hold, or whether popular opinion will hold sway. Reportedly, state media censors contacted a few state-run news outlets and instructed them to limit coverage of the restrictions and to downlplay any controversy that is likely to ensue as a result. Suddenly, the dream of car ownership that many members of the Chinese middle-class, which was almost within reach, is possibly again out of reach. With international auto companies banking on rapid growth in markets like China as growth in North America and Europe slows or even stops, the story of China’s growth rate (or lack of, as the case may be) warrants close attention.