Weak auto and smartphone sales bode ill for Chinese economy (Nikkei)

Marked slowdown in two marquee drivers of consumer spending

YU NAKAMURA, Nikkei staff writer

GUANGZHOU — The consumer spending driving China’s economy is showing signs of losing steam as sales of vehicles and smartphones have cooled in the world’s largest market for both.

Chinese sales of new vehicles grew just 3% last year, the slowest rise in six years, with sales falling at eight of the 12 companies that make up 90% of the market. Dongfeng Motor Group, which ranked second in sales last year, logged a 4% decline, while sales sank 6% at fourth-place China Changan Automobile Group and slumped 12% at No. 5 Beijing Automotive Group, parent of BAIC Motor. BYD, the country’s top manufacturer of “new-energy” vehicles such as electrics and plug-in hybrids, suffered a 17% drop.

Conditions look unlikely to improve. The China Association of Automobile Manufacturers forecasts another year of 3% growth in 2018.

The slowdown owes in large part to the government scaling back or ending incentives, including a tax cut on small cars introduced in October 2015 as part of an economic stimulus program. This break was reduced in 2017 and scrapped at the end of the year after an unusually long run.

The government is also cutting subsidies for production of electric cars and other environmentally friendly vehicles, which many automakers have relied on. These payments were slashed by as much as 40% last year, while stricter requirements were imposed as well. The government is eyeing further reductions this year.

Beijing hopes to give the market a boost by promoting a shift to electric cars. But it has yet to hammer out details of upcoming regulations on new-energy vehicles, including production quotas — a key element of this push. The start date for these rules has been effectively pushed back to next year.

China’s smartphone market is seeing an even more pronounced slowdown. Shipments fell 4.9% to 444.3 million units last year, marking the first annual decline, data released Tuesday by research firm IDC shows. The drop-off in China — the world’s largest smartphone market since 2012 — weighed on global shipments, which also shrunk on an annual basis for the first time, albeit less than 0.1%.

Data for the most recent quarter paints an even grimmer picture in China, with shipments down 15.7% on the year in the three months through December. Some already worry that conditions will be even tougher this year than in 2017.

Part of the problem is a saturated market that has made it tougher for smartphone makers to stand out from the crowd. “When Apple released new products last fall, Chinese manufacturers launched new handsets with the same features at almost the same time,” a smartphone seller in Shenzhen noted. “It’s the same with facial recognition technology. Consumers are just getting bored faster when it comes to smartphone hardware.”

Rising stars Oppo and Vivo gave the market a shot in the arm in 2016 and early 2017, appealing to young consumers with fresh new smartphone brands featuring high audio and video quality. But both lost much of their momentum in the latter half of last year. Oppo’s Chinese shipments dropped 18.5% in the October-December quarter, while Vivo’s slid 13%.