Quick Take: Car Sales Backing Up in China

Car sales have been sputtering in China.

The Vehicle Inventory Alert Index signals whether auto demand is strong, indicated by a figure below 50%; or weak, indicated by a figure above 50%. The index has been above the 50% for seven months, and registered 52.5% in July.

July historically is a slow period for auto sales due to hot weather, which discourages potential buyers from looking for cars, according to the China Automobile Dealers Association (CADA), which puts out the index.

Association Secretary General Xiao Zhengsan said he was “not optimistic” about the auto market for this year, a downgrade from his forecast of “cautious optimism” at the beginning of 2017.

Tax policy is also hurting sales. In September 2015, the government lowered the sales tax on cars with an engine capacity of less than 1.6 liters from 10% to 5% to boost demand. But the tax was raised to 7.5% in January and will return to 10% next year.

Meanwhile, people have less money to spend on cars because of surging housing prices in certain cities, said Fan Yu, deputy director of CADA’s industrial coordination department.

Contact reporter Coco Feng (renkefeng@caixin.com)