The big question is where is the money coming from to buy these cars? Please don't tell me it is cheap credit from banks with massive amounts of bad loans.
Perhaps LEX can help me out:
Cars in China [FT]
Isn’t it great when a plan comes together? A few months ago Beijing was fretting about an apparent collapse in demand for cars. Muted sales data – passenger cars fell 35 per cent between March and August – suggested that China would be lucky to get anywhere near its target of shifting 10m vehicles in 2009. Some blunt instruments later – tax cuts and subsidies for smaller vehicles – and cars are flying off forecourts. With 2.7m new vehicles shifted in the first quarter (up 4 per cent year-on-year), China has zoomed past the US (2.2m, down 38 per cent) as the world’s largest market. At that rate, Beijing will beat its 2009 target by early December. No wonder this week’s Shanghai auto show is more festive than similar events in the west, which are being scaled back or canned.
But delegates should keep some champagne on ice. Carmakers are not necessarily looking at better profits: minivans mean mini-margins. Sales of vehicles with bigger engines are falling, as they are everywhere else. This year’s overall pick-up in sales is almost certainly linked to rampant credit growth, which the banking regulator last week said it intends to tame. And the industry still has structural demand problems. Take cars: sales growth averaged about 40 per cent a year in the six years to 2008, when annual growth slipped to 7 per cent. Even with the punchy start, 2009 is set for about 5 per cent, estimates Citi. For a country with third-world penetration – 32 cars per 1,000 people in 2007 (compared to 800 in the US) – that kind of growth is hardly spectacular.
Chinese savings rates are among the world’s highest, implying huge potential for consumption to rise. But as Morgan Stanley points out, given off-book liabilities such as retirement, healthcare and education, the average consumer is practically in negative equity. Despite inducements from Beijing, households may continue to prioritise these invisible debts over a new set of wheels.