Quick Take: Car Sales Hit Pothole in China

Vehicle sales in China fell 2.2% in April from a year earlier to 2.1 million units, dragged down by weaker demand for passenger cars after the government reduced tax incentives for buyers.

Sales of cars dropped 3.7% from a year earlier to 1.72 million units and slumped 17.8% from March, the China Association of Automobile Manufacturers (CAAM) said Thursday. The decline in overall vehicle sales was the first since February 2016, according to previously released figures from the association.

The government lowered the purchase tax on cars with engine capacity of under 1.6 liters from 10% to 5% in September 2015 to boost demand. But the levy was raised to 7.5% in January and will revert to 10% next year.

In 2016, car sales jumped by 15% to 24 million units, boosted by the tax cut. But in the first four months of this year, purchases have risen by just 4.6%, according to CAAM data.

In April, sales of cars with engines of 1.6 liters or less dropped by 10.2% year-on-year to 1.1 million units, with their share of the overall passenger-car market falling to 66% from 70.8% a year earlier, the association said.

Even so, some categories saw increased demand — sales of new-energy cars, including electric and hybrid, rose 7.9% to more than 34,000 units. Purchases of commercial vehicles, including buses and trucks, rose 5.3% in April to 362,000 units, and vehicle exports jumped by 26% to 68,000 units.

Sales of Chinese brands accounted for 42.6% of all passenger cars, up 0.8 percentage points from a year earlier, but they still trail foreign automakers.

Contact reporter Coco Feng (renkefeng@caixin.com)