Beijing says to stop in the war war in the car. The Chinese government wants to break the deflation spiral that affects different sectors, but in particular the new car manufacturers.
Deflationary spiral
With fierce competition, manufacturers tend to reduce their margins to show more competitive prices: a “Neijuan” phenomenon called So, a Chinese concept that literally means “internal wrapped”, and translated into English and French for the end of the involution, summarizes an article in the international mail, which takes a text published in the Sina Finance portal on July 31.
“In the manufacturing industry, this results in a fall in the beneficiary’s margin, it increased from 6.6% on average in 2011 to 5.3% in 2024,” this expert estimates at the Research Center on the Reform and Development of Beijing and columnist of the Chinese Economic Magazine Caixin.
The researcher especially evokes industrial overcapacity in the car, with a rate of use of the production capacity of 71% and, therefore, under the 75% profitability threshold.
In the electric, the cited figures are impressive and disturbing: in the “new energies” cars that are liked (100% electric and rechargeable hybrids), China has a production capacity of 25 million units, with the desire to double this long -term capacity. But the market trend is not yet there, with the global demand last year of only 18.3 million vehicles.
Among the reasons for this emotion, the Chinese president, Xi Jinping, recently “criticized provincial governments for their blind investments in artificial intelligence, computer power and new energy vehicles, sectors that Beijing has identified as strategic priorities, but that they are also likely to overcome,” says an article by Guardian. In the car, Beijing ordered managers of manufacturers to reduce this excessive capacity.
Export to compensate for low internal demand
Excessive offer leads to price reductions in Chinese automotive brands. The British Daily cites the example of Byd, which recently lowered the price of its electricity level electric car, the seagull (recently marketed in Europe under the name of “Dolphin Surf”), to 55,800 yuan, or 6,735 euros, or a 20% reduction compared to its previous sale price. The same decrease in the proportion with Great Wall Motor and its city car or 3 compared to its price last September.
The problem, even with these price reductions, Chinese demand cannot absorb this excess supply, with a salary level still too low.
“In 2022, wages only represented 24%of Chinese GDP. A percentage not only far from the American level (almost 57%), but also lower than that of countries whose level of development is comparable to that of China (around 40%),” explains Wang Mingyuan, cited by international mail.
Therefore, the idea would be to increase exports, particularly to Europe, in full transition to Electric. But the fear of a massive influx of vehicles and an unfair competition in front of European manufacturers has already caused the increase in European tasks in Europe in Chinese electric vehicles last year.
In response, Chinese manufacturers have developed their sales of hybrid models, not affected by these surcharges and, although this engine attracts more and more buyers. The market share of Chinese brands in Europe reached 10% of sales last June, when it was only 3.6% in July 2024.
Source: BFM TV
