If yesterday’s lacklustre stock performance of mainland carmakers says anything, it would be that investors doubted the effectiveness of Beijing’s 15 billion yuan (HK$17 billion) support measures and concessions to arrest the decline of the vehicle sector.
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Vehicle Makers Slump Despite Stimulus Plan
Kandy Wong
16 January 2009
If yesterday’s lacklustre stock performance of mainland carmakers says anything, it would be that investors doubted the effectiveness of Beijing’s 15 billion yuan (HK$17 billion) support measures and concessions to arrest the decline of the vehicle sector.
The stimulus package announced on Wednesday appeared to have been formulated hastily and was “too weak” and ineffective to boost vehicle sales, analysts said.
The State Council’s decision to implement the rescue followed November’s lowered sales figures that offered no sign of a rebound, and echoed similar moves by governments in the United States and South Korea that have bailed out their carmakers.
China, the world’s second-largest vehicle market, sold 9.38 million units last year, short of its 10 million target. With the exception of October, a traditional peak month for car sales during the Golden Week holiday, the mainland recorded monthly sales declines in August, September, November and December as a slumping A-share market damped consumption.
As much as vehicle executives might tout the benefits of the rescue measures for the industry, analysts questioned whether the central government had conducted in-depth analyses before the plan was rolled out.
Under the package, consumption tax on vehicles with engines of 1.6 litres or less will be cut to 5 per cent from 10 per cent from January 20 to December 31. The tax for vehicles on 2-litre to 2.5-litre engines, the most popular, will remain at 10 per cent.
“As the government has promised to give a helping hand to the vehicle industry, it has no choice but to announce the details,” said an analyst. “But these measures do not hit the heart of the issue to revive the industry.”
The vehicle industry had been negotiating with the government since last month on scrapping the consumption tax for 1.6-litre and below vehicles, or cutting the tax to 2 per cent from 10 per cent.
“[The measure is] weaker than our expectations in terms of both scope and scale,” Morgan Stanley’s Kate Zhu said in a report. “Although we agree this plan can partially offset declining demand, it will be difficult to completely reverse [consumption] sentiment [now].”
Similarly, the Ministry of Finance’s allocation of 5 billion yuan to subsidise farmers upgrading to use light trucks and minicars with engines under 1.3 litres between March 1 and December 31, and spending 10 billion yuan to develop “alternative-fuel vehicles” and components over the next three years, were deemed ineffective.
A report by China International Capital Corp said the 5 billion yuan subsidy would provide a limited stimulus effect as it was only 6 per cent of the potential 80 billion yuan in sales of light trucks and minicars this year.
CICC’s calculation also showed the 10 billion yuan to be invested in technical innovation for three years accounted for only 10 per cent of the industry’s research and development expenses over 2009 to 2010.
“It will take a long time for industry players to raise their technical power” regardless of how much money was allocated, said analyst Wang Zhihui.
Beijing also reiterated its call for mergers and acquisitions in the industry, and government support to promote self-branded vehicles by hastening exports and fine-tuning the car financing business. It did not provide details.
But analysts noted that local governments were reluctant to allow local players to be acquired by bigger regional rivals as vehicle manufacturing contributes to local economic growth.
“[In addition,] the ties between SAIC Motor Corp and Nanjing Automobile Group [in 2007] didn’t generate good results,” said Mr. Wang of CICC.
Shares of mainland carmakers slumped yesterday. Sport-utility vehicle maker Great Wall Motor dropped 7.46 per cent to HK$3.10, Dongfeng Motor declined 6.91 per cent to HK$2.56, Brilliance China Automotive Holdings was down 5.77 per cent at 49 HK cents and Denway Motor closed 4.02 per cent lower at HK$2.39.
Small carmaker Geely Automobile Holdings was down 3.28 per cent at 59 HK cents. A share SAIC Motor Corp, the country’s largest carmaker, closed 1.64 per cent lower at 5.98 yuan. FAW Car dropped 2.09 per cent to 8.45 yuan and sister company FAW Xiali declined 1.08 per cent to 4.59 yuan.
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