Shenzhen limits car sales

Shenzhen has finally joined China’s other cities – including Beijing, Shanghai and Guangzhou - in restricting the number of new car sales, making it the eighth Chinese city to implement such rules in an effort to alleviate the cities’ polluted air and congested roads. Announced last week and effective immediately without prior public notice, drawing the ire of its residents, the new rule only allows 100,000 new license plates a year, and the fortunate ‘few’ will be determined through auctions and lotteries. Located in southern Guangdong, the city has about 3.1 million registered private cars but only 1.04 million parking spaces, according to the city’s transport commission.

20,000 of the quota is reserved for electric cars. The government had, in the same week, extended a subsidy programme to encourage the use of the supposedly pollution-free alternative vehicle for a further five years. This is perhaps good news for BYD, China’s own manufacturer of electric cars backed by none other than Warren Buffet and based in Shenzhen itself.

Other car manufacturers and dealers would not be rejoicing along. Existing license plate owners are allowed to transfers their plates to new purchases, but such replacement sales are expected to not exceed 250,000; which means, car sales in 2015 will not go beyond 350,000 units, a 30% drop compared to 500,000 passenger cars sold in the city last year.

Reuters reported that Consultancy McKinsey forecast more than 20 Chinese cities would “exceed a burdensome car-density threshold of 250 vehicles per kilometer of roads” by 2020; so, it will not be surprising if other smaller cities like Chengdu will soon implement similar car sales limitations.

Such restrictions have dampen growth in what is considered the world’s most lucrative automotive market. In the first 11 months of 2014, unsold inventory increased by more than 30%, forcing car manufacturers and dealers to turn to smaller cities to ply their wares. Financial Times reported that more than 80% of the country’s population live in areas where the per capita GDP is less than US$4,500; while the buying power is certainly less, there are more potential customers to appeal to and affordable cars will still be able to find buyers. Most importantly perhaps, in the context of this article, restrictions on car sales have yet to be imposed as lower tier cities do not (yet) suffer the same level of congestion and pollution as the bigger cities. 

image: ft.com