Auto industry urges relaxed car purchase restrictions

As Beijing closed some of its roads on Tuesday for No Car Day, an auto industry official called for relaxed restrictions on car purchases to help a market that has slowed to single-digit growth after years of breakneck expansion.

To limit road congestion and smog, China's biggest cities only offer a limited number of car plates and residents can only get one through a lottery or bidding.

Dong Yang, deputy head of the Chinese Automobile Manufacturers Association, wants the seven Chinese cities that restrict car purchases to distribute an additional half a million plates in total this year.

This number of extra cars would allow the Chinese auto market to grow by about 2 percent, Dong said.

As China's economic growth moderates, its auto industry has stalled. It grew by an annual average of 24 percent between 2000 and 2010, but the growth rate declined to about 7 percent between 2010 and 2014. In the first eight months of 2015, both production and sales dropped slightly from a year earlier.

The industry's concerns are deepened by excess production capacity of several million vehicles in the coming years.

Dong also claimed relaxing car purchase restrictions would chime with the government's efforts to stabilize the economy.

China's economic growth dipped to 7 percent in the second quarter as the country transforms its economic growth from an investment-driven to a consumption-led model.

Tumbling real estate sales and industrial overcapacity add more pressure to the world's second-largest economy.

Cities could restore their car purchase restrictions next year as the economy picks up, Dong said.

He said half a million cars would cause negligible extra traffic as they would only represent about 5 percent of the total number of vehicles in the seven cities.

However, analysts say auto companies should not pin their hopes on any such relaxation as combating pollution and easing traffic are priorities in policy making.

Instead of focusing on developed cities, carmakers could tap potential in central and western China, where urbanization, rising disposable income and improving road infrastructure offer robust growth drivers.

"There is significant demand potential for cars in small cities and counties," said Jia Xinguang, an auto analyst.

Chinese third-tier and lower cities accounted for 76 percent of total car sales in 2013, up from 60 percent in 2005, according to official data.

Fitch Ratings expects this trend to continue. The rating agency said in a report that demand in top-tier Chinese cities would be mainly for replacement and upgraded vehicles, while faster-growing lower-tier cities were likely to be dominated by mass-market models targeting first time, entry-level buyers. Endi