Why China’s auto sales growth is at its weakest pace

China’s auto sales impact the shipping industry

Automobile sales support the shipping industry. When automobile sales grow consistently, it provides a cushion for the shipping industry. This drives oil demand. When China’s consumers’ purchasing power increases, it also supports industry growth. High demand is keeping the country on track to overtake the U.S. this year. It will become the top oil importer.

August sales are weak

For August, passenger car sales in China increased 8.5% to 1.47 million vehicles—from 1.35 million vehicles in the same month last year.  According to data from the China Association of Automobile Manufacturers (or CAAM), this is its weakest growth rate since March. For the first eight months of the year, the country’s auto sales increased 7.7% to 15.02 million vehicles.

This was mainly due to a slowing economy. It was also due to the government stepping up anti-monopoly probes. The probes focused on foreign car makers in the world’s biggest auto market. Consumers stopped buying cars because they anticipated price cuts after the government’s recent anti-monopoly probes.

Also, July and August are seasonally slow months for car sales. Auto makers usually shutdown part of their operations during the hot weather. The dip in growth could be partially attributed to car dealers reducing their inventories.

Anti-monopoly probe

In a joint press briefing in Beijing, China’s three antitrust regulators discussed rebutting claims that recent investigations unfairly targeted foreign businesses. This escalated a government counter-offensive against mounting criticism from U.S. and European companies.

Chrysler Group LLC and Volkswagen AG were fined by local competition authorities in Shanghai and Hubei provinces. Eight Audi dealers in Hubei were also fined.

Outlook

CAAM expects China’s auto sales to grow by 8.3% to 23.8 million vehicles in 2014—compared to the 10% increase that the association projected in January. The auto sales are mainly affected by China’s antipollution efforts. They’re also impacted by the easing demand for commercial vehicles.

Despite the decrease in growth, positive estimates for China’s auto sales this year would have a positive impact on crude tankers. The crude tankers include companies like Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), Teekay Tankers Ltd. (TNK), and Frontline Ltd. (FRO). The Guggenheim Shipping ETF (SEA) would also be affected.

In the next part of the series, we’ll discuss how the crude tanker orderbook performed.

Visit the Market Realist Marine Shipping page to learn more about the shipping industry.