Beijing’s zero-COVID policy chokes growth in domestic car market

SHANGHAI – With a large number of domestic cities complying with the central government’s zero-COVID policy to combat a new wave of virus outbreaks, China’s car market tanked last month after rebounding for five straight months. 

Unless the government abandons its draconian pandemic response, which is known for snap lockdowns, mass testing as well as strict quarantine and travel rules, the market prospect will be grim. 

Industry bodies have yet to release their new-car sales tallies for Nov, but initial numbers show the market was geared towards a steep decline in the month. 

For the first 27 days of Nov., industrywide retail sales of new cars including sedans, crossovers, SUVs and multi-purpose vehicles slumped 14 percent year on year to 1.23 million, the China Automobile Dealers Association said on Wednesday. 

The number also represents a 15 percent fall from Oct., the trade group said.

The reasons behind the seemingly abrupt market contraction are clear. Dozens of Chinese cities, implemented partial lockdowns in an attempt to control spiking coronavirus cases. 

These cities include Guangzhou, Chongqing, Chengdu and Zhengzhou, each boasting a population of above 10 million and hosts plants of multiple domestic and foreign automakers.

The lockdowns have also dealt a heavy blow to vehicle sales. 

According to a survey the CADA completed this week, because of COVID-related control measures, 41 percent of car dealerships in China suspended operation last month. Most closed for more than two weeks, the trade group noted.

This year, tough anti-pandemic government measures have knocked the domestic car market off the normal growth track for the second time. 

The market tumbled in April and May after Shanghai, China’s largest city and auto production center, was subjected to a two-month citywide lockdown.

It subsequently rebounded from June to October after Shanghai came out of the lockdown and the Chinese government rolled out a tax incentive for gasoline vehicles on June 1. 

Under the incentive program, purchase tax was halved to 5 percent for new gasoline light vehicles with engine sizes up to 2.0 liters and priced at $38,120 or below.

The current wave of coronavirus outbreaks in domestic regions has shown signs of subsiding this week, health authorizes in China. 

Meantime, automakers and industry bodies are now lobbying the government to extend the tax incentive for gasoline vehicles and the existing subsidy program for full electric vehicles and plug-in hybrids, both due to be terminated at the end of this month.

If their wishes are granted, the market might not be able to regain a stable footing.

Given the transmissibility the coronavirus is gaining through constant mutation, another wave of outbreaks might emerge to disrupt vehicle production and sales as long as the government upholds its zero-COVID policy.