Zita Zigan, Global Commercial Vehicle Forecasting
26 April 2018
26 April 2018
The evolution of Chinese Truck demand – Part 1: the short term
The world’s largest Truck market – it accounted for nearly half of total global Medium and Heavy Truck sales in 2017 – has appeared to defy gravity in 2018, at least according to the wholesale figures released by the Chinese Association of Automotive Manufacturers (CAAM). These figures show that Q1 sales exceeded the previous year’s level by 9%. What’s more, Truck demand, as measured by wholesales, appeared to exhibit dogged resilience, with the monthly running rate averaging 1.3 million units per annum in March (on a seasonally adjusted basis).
Yet, the registration data tell a different and contrasting story, pointing to a 26% decline for the first two months of the year, compared to the first two months of 2017.
“Q1 sales exceeded the previous year’s level by 9%”
So what are we to make of these two, apparently inconsistent, sets of figures? Should we expect renewed momentum from a market that had been on a sharp downward trend by late 2017 and has been widely expected to come down from recent heights, against the backdrop of a cooling macroeconomy?
The answer is that it is unlikely. The registration figures are telling. Granted, the Chinese Truck market has a habit of defying neat econometric models – the forecaster’s essential toolkit. Such is the nature of command economies. The complexion of demand can change rapidly, as new policies or regulations are introduced and new economic realities are created by fiat and at breathtaking speed.
Indeed, it was such a regulatory change that prompted the current boom: the record market of 2017 was, to a large extent, attributable to the new overloading regulations (GB1589) that were introduced, at short notice, in September 2016. In particular, demand for Articulated Trucks (the main carriers of freight) increased hugely in response to this as more vehicles were needed to carry the same amount of freight as before. But this effect has been fading rapidly in recent months, and is expected to continue to do so in 2018, as the sort of factors that drive freight demand (such as investment and industrial production) lose momentum, albeit gently.
Demand for other types of Trucks comes from non-freight sources. Vocational and Dump Trucks have posted robust growth in recent months, on the back of strong infrastructure investment. Although this is likely to wane over the year ahead, real estate investment and housing construction are holding up well and will continue to provide a measure of support as far as these market segments are concerned.
“forecast risk would appear to be on the downside at this point, in view of rising tension between China and the US”
In the absence of government intervention to prop up the industry, we would expect current macroeconomic trends to manifest themselves in a Truck market correction – and we would expect this to be reflected in the wholesale figures as soon as Q2.
If anything, forecast risk would appear to be on the downside at this point, in view of rising tension between China and the US and the attendant risk of much more serious friction over trade.
The next large wave of demand is expected by 2020 in the run-up to the next set of emission regulations (State VI).