Chinese market shows a K-shaped recovery

China's economy is showing a K-shaped recovery since the outbreak of COVID-19 in 2020. This pattern is also evident in the auto market.

James Zhu, Powertrain Analyst, China

23 August 2021

In the wake of the COVID-19 outbreak in early 2020, the Chinese central government implemented a series of macroeconomic policies focused on loose monetary and proactive fiscal measures. These, together with the effective containment of the virus in China, fostered a rapid economic recovery. In particular, the automotive market rebounded slightly ahead of expectations in the second half of last year.

Closer examination, however, reveals a lingering imbalance in the economy’s internal structure. For instance, the performance of the Purchasing Managers’ Index (PMI) among medium and large enterprises is significantly better than that among smaller enterprises. In the post-pandemic era, the PMI of small companies is below the 50% mark. The PMI of larger companies, in contrast, is above the 50% mark, indicating that the government’s fiscal and monetary policies have been less effective for smaller enterprises than for their medium and larger counterparts. In short, the economy is showing a K-shaped recovery curve.

Data source: National Bureau of Statistics of China.

The same recovery pattern is in evidence in the automotive market. Based on our latest forecasts, the Chinese Passenger Vehicle market is comfortably on track to hit sales of roughly 22 million units this year, in line with the 2019 level. But the internal market structure will differ considerably to that of 2019, and the rate of recovery from the 2020 decline will be far from uniform across the various sales groups.

Among them, 15 are set to record sales growth this year and 15 are expected to close the year in negative territory, when compared with their performance in 2019. In other words, it will be a zero-sum game, with some OEMs recovering strongly, while others fail.

Data source: LMC Automotive China Automotive Monthly Market Forecast.

In size terms, the Compact segment – which accounts for the largest share of China’s overall market – is set to decline from 63% in 2019 to 60% in 2021. This contrasts with growth in the Mini, Midsize and Fullsize segments. Mini segment share is projected to expand from 0.5% in 2019 to 3% by the close of this year, while the Midsize and Fullsize segments should see market share rise from 20% in 2019 to 24% in 2021.

In terms of market status, Premium segment share is expected to improve from 14% in 2019 to 18% this year, and the Low-Cost segment is forecast to end 2021 with 2% market share, up from 0.5% in 2019.

These figures show a K-shaped recovery curve in the vehicle market, in keeping with the overall economy, and we expect this pattern to continue as we move forward.