China is the world’s largest market for new cars. Last year, sales of cars, mini-vans and sport utility vehicles in China surged 8 percent. As indicated by the New York Times, China’s car-buyers are not relegated to college educated, white collar elite.
Many of the buyers are blue collar workers who have experienced roughly eight fold growth in wages over the past dozen years. But with China’s economy slowing, car sales have predictably been slipping. After auto sales declined for 3 months in a row, the Chinese government decided last September to cut the sales tax on cars with smaller engines by one half.
The primary beneficiaries have been domestic Chinese automakers, including many that produce inexpensive subcompacts. But the tax cut is scheduled to expire at the end of 2016, which may mean that 2017 will be a very difficult year for China’s auto industry.
While that would seem to be of small consequence to Americans, many car companies, including Cadillac and Volkswagen, have invested significant amounts to build cars in China. If the Chinese do not purchase those cars, the global market for automobiles could soon be flooded, helping to drive prices lower.
