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Car Sales Steady Despite China's Ownership Restrictions

Inland cities are also joining their bigger coastal peers, which usually lead in safety and environmental rules. Smaller inland cities tend to get so bent on growth that they overlook quality of life side effects. But in on recent example, last month the city of Shijiazhuang, a newish boomtown 300 kilometers southwest of Beijing, said that from the end of the year it would stop households from buying a third car and in 2015 launch a license plate lottery.

Growing pressure against new motor vehicles is already reflected in the sales of bicycles by one of China's top offshore suppliers, Giant Manufacturing. Giant spokesman Jeffrey Sheu cites those curbs as one reason (along with cycling promotion and increased recreational spending) that Chinese customers helped increase its world sales from 5.77 million bikes in 2011 to 6.31 million in 2012.

But so what if a fraction of China's population is cycling or even if Chinese leaders have soot all over their faces? It's not like the public can throw them out of office under authoritarian rule.

That means government officials can afford to hedge on curbing motor vehicles, which obviously remain popular icons among China's growing urban middle class. Officials also want China's automotive industry to catch up with foreign manufacturers -- a tough plight as Chinese consumers often suspect that local brands of just about anything lag in quality.

The pollution-linked restrictions are expected to hit local automakers, China Daily says, quoting the China Automobile Dealers Association. Domestic brands will "suffer" in more cities and lose more market share while joint-venture and "high-end models" will be affected less, an association official is quoted saying.

To control pollution without hurting automakers, some Chinese cities such as the southern sprawl of Guangzhou are promoting use of hybrid or electric vehicles. Guangzhou also limits use of gas-powered vehicles, joining Beijing, Shanghai and Guiyang as the original four cities to impose restrictions.

But vehicle sales aren't expected to slow markedly, yet. Expect nationwide sales to grow through the end of 2013 but at a slower rate than before, says Yale Zhang, managing director of the Chinese market research firm Autoforesight Shanghai Co.

"The negative impacts from decisions by these cities will be long-term," Zhang says. So far, he adds, "It's hard to say what degree." Same for automaker stocks, he says.

At the time of publication the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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