Breakingviews: Zooming car sales will hit China’s growth limit

HONG KONG, Oct 20 (Reuters Breakingviews) – Automakers are hitting China’s growth limit. The industry achieved four consecutive months of double-digit growth in September when deliveries reached 2.3 million, 33% higher than a year earlier, per the China Association of Auto Manufacturers. But temporary government incentives greased sales, which could pull forward demand.

Some recent purchases represent pent-up demand after months of lockdowns. Buyers were also capitalising on new policies: Beijing extended tax exemptions for electric cars in August, soon after halving auto purchase taxes for smaller gas guzzlers.

Stimulus doesn’t always mean a bumpy ride. In the United States, a 2009 so-called Cash for Clunkers scheme, where drivers relinquished older motors in return for subsidised newer models, successfully invigorated sales without undermining the months that followed. However, in China, underlying demand seems soft. Smoothing out data on a year-to-date basis, total sales grew 14% from a weak base. Purchases of traditional engines, representing two-thirds of the market, are down by a quarter year-to-date, making life tough for marques such as Volkswagen (VOWG_p.DE) – the world’s largest auto market accounted for a third of its deliveries last year.

As incentives expire, cars could follow a similar route to China’s commercial vehicles. A combination of new regulations and Covid-19 stimulus encouraged…