The recent announcement of China auto sales eclipsing American auto sales doesn't quite add up. by James Luko
(centrist)
Wednesday, December 2, 2009
Comparing auto sales in China and America is not like comparing apples to apples. In China, the majority of auto sales are of Chinese designed and manufactured vehicles which cost less than $8,000 (many cost as low as $4,000 USD). These vehicles could hardly be called "cars" as we know it, they are more like glorified golf carts. They are built very poorly, the steel structure of the vehicle is as thin as aluminum foil and their engines are the size of a small motorcycle in the U.S. In other words, the American media loves to bash America and "create" doom and gloom images of America's decline, but the headline is deceiving because we are comparing the sales of apples and oranges, not apples to apples. Pound for pound, engine size for engine size, we are hardly comparing the sales of two similar products. It's like comparing the fact that you sold 2 yachts in America versus 5 rubber rafts in China, but the headlines features- China sales of 5 boats "eclipses" America's sales of 2 boats. If you want to call a rubber raft a boat- I guess you could but it's not accurate for the purpose of technical comparison of volume, capacity, quality, cost or utility.
In addition, the latest boom in Chinese auto sales is largely a result of "massive" government purchases of these "golf-cart" type vehicles as well as "massive" government credit liquidity to both "selected" vehicle buyers as well as tax incentives to manufacturers and dealers to sell vehicles.
Bottom line, the higher "vehicle" sales in China, despite the numbers being compared to a "temporary" slump in U.S. auto sales, is more of an artificial construct than a real- car- for car sales dominance.
Vehicle sales in China of "real" cars, i.e. "normal" cars (which are of comparable dimensions and engine size of American cars) have ticked up slightly, but accounts for less than 5% of the "boom" in domestic car sales reported by both Chinese and American media. In other words, China is NOT pulling out ahead of America in sales of "real" autos, yet, at least. And, taking into account an eventual recovery in American auto sales, it may be another 5-7 years before China would have comparable sales.
One would also note that "foreign" vehicles produced in China are not only built at cheaper labor costs than in their countries of origin, but they are built with much lower quality. Having driven "foreign" but domestically produced autos for two years now in China, I've seen these cars Buick, Nissan, Mercedes, literally fall apart- hitting small bumps- the entire interior roof panel came loose, dials come off in your hand, doors don't close, terrible transmission noises on newer vehicles, etc.
Point is, its just another manipulated "half-truth" that is seized upon by the mainstream media to bash America and "attempt" to point out the DECLINE of the America. This is the same kind of superficial analysis which allowed the media to be duped for so long by the now exposed pseudo-science of climate-gate scientists. The media treated Japan, as they now do China, in the early and mid-1980's , about how Japan's rising sun would soon "eclipse" America, about how the Japanese corporate statist model was superior to America's, it went on and on with manipulated half-truths. Just as climate-gate has demolished the so-called "unequivocal" truths of global warming, the superficial- and WRONG media analysis of Japan in the 1980's was proven when Japan's collapse exposed a gigantic hidden nexus of corporations, banks and government agencies who worked in tandem to enrich themselves in a cloak of non-transparent machinations. This led to Japan's devastating deflationary spiral for which Japan has never recovered. The media no longer talks about the great future of Japan. This recent story about auto sales in China "eclipsing" American auto sales is just a stark example of how the media is repeating and fostering among the general public, it's gigantic lapses in independent analysis which was exposed in the fall of Japan, global warming and now China.
China may very well "eventually" eclipse America in "real" auto sales, but it's not going to happen today.
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C'mon James, you really believe what you are writing. "Golf cart" type vehicles? And the intent to "bash" America? They aren't similar to golf carts and the intent isn't to bash America. Also, you point out government incentives as an artificial means of increasing sales. Yet, weren't there government incentives in US? Plus, most cars in China are bought with cash whereas in the US, its done with credit. The numbers may not be an across the board comparison, but I believe it is an indicator of what is coming down the road. Also, I wish I had a nickel for every naysayers who make a comparison with China today to Japan of the 1980's. Japan never eclipsed America, but Japan has eclipsed every major country outside of the US and became the second largest economy and still is today (though, it will be China that bumps Japan down to third place). And lets not forget, for everyone who is bullish on China, there will always be naysayers like yourself. Of course, over the last several decades, those bearish about China have continued to be proven wrong. And will continue to be proven wrong into the future.
On December 2nd, 2009 Anonymous Btok (not verified) said:
Time is getting short and it is coming down to the fact, that soon I will have to pray to Jesus, to maintain our freedoms an not allow our leaders to sign the Copenhagen Treaty, which will take away our liberties, let go and let God-this being a challenge to our Lord and Saviour? However, while there is still time to prevent the loss of a lifetime, perhaps loss of life it's self - I will do what I am able to fight for our freedoms! The whole Climate change agenda is a proven fraud but the United Nations and Globalist governments don't care as that is just the excuse instrument they have used to ensnare us! Has everybody out there become a tree hugger? Anyone out there want to fight and maintain their freedom anymore? Please do all you can to preserve freedom in North America!
To request that PM Harper doesn't sign the Copenhagen Treaty, thereby causing Canadians to lose their Sovereignty and Freedom email the PM at: pm@pm.gc.ca
Thanks for your comment. Taishan, no, I don't have to “believe” what I'm “writing” I believe my own eyes and experience with Chinese vehicles and foreign models manufactured here in China.
If you say the media has no “intent” of “bashing” America, I believe you then.
The analogy to golf carts is simply that a great number of domestic auto sales in China are of vehicles with engine displacements so low- that “officially” they are banned from many roads and highways in China- although because of their huge numbers on the road, the “ban” is usually ignored by police. So, if a vehicle is so low in engine displacement that it has driving restrictions- I wouldn't compare that with a “normal” average sized vehicle and thus analogy to a golf cart which is also a “vehicle” but because of its size, weight, slow speed and small engine displacement- is also banned from most roads and highways.
In addition, “in my opinion” after driving many of these Chinese vehicles- because of their size, thin bodies, stripped down interiors, very small engines- they “personally” reminded me of driving golf carts and my lawn tractor back home. Therein lies a second reason to my analogy to golf carts.
Taishan, yes, you are right we just recently had the cash for clunkers program which is comparable to the China's relaxation in purchase tax of 5% which is also set to expire soon. My point- was, as I should have written, that akin to the Japanese statist-corporatist model, an enormous number of vehicles are not only purchased by the government itself- as does the U.S. Government, but remember that the majority of the Chinese economy is “still” generated by SOE's (state owned enterprises) (I.e- GOVERNMENT) so that another huge chunk of the Chinese auto industry is basically- government sales via SOE's. There is no denying that regular Chinese consumers are snapping vehicles up- not doubting that, I merely point out that the product structure is VERY different than America and several millions of those vehicles are NOT comparable in relative terms.
No Japan never eclipsed America- but the American media in those days “hyped” Japan and their “winning” economic system. Time Magazine covers displayed- the “rising sun” using extrapolation methods (just like the global warmers) to indicate how Japan “was” going to take over the global lead in economic terms. Didn't happen, just like temperatures have actually fallen the past 10 years or so, extrapolation theory is a poor method of forward analysis.
China is growing rapidly, no doubt, but there are enormous underlying problems of bad debt, a bankrupt state sector which is the majority of the economy, 800 million “still-poor” Chinese and growing lack of competitiveness of Chinese products because of rapidly rising wages (i.e. hence the move of low-value production to the interior of China seeking lower wages). My point is NOT that China will not grow, but that to use extrapolation theory of applying 9 or 10% growth and assuming that's going to continue is a very poor method, usually wrong, and poor method of analysis. Even “ IF “ you assumed continued and constant 10% growth in the Chinese economy (which is a big “ IF “ due to a host of other factors and problems that will arise and slow down Chinese economic growth) you can do the MATH by yourself and compound 10% growth against a current 4.3 Trillion dollar Chinese economy (not taking into account revised stats due to a possible appreciating RMB) and it would take about 14 years for China to catch up to America- ASSUMING- the U.S. Has ZERO growth for the next 14 years.
If the U.S. has an average of 2-4% growth in the next 14 years it would take China over 20 years to catch up in terms of economic size.
In this context, I would not say that I am “bearish” on China, but rather just like in the case of Japan, Enron and Bernie Madoff, rapidly rising numbers usually don't last. Extrapolation theory was wrong in terms of popular issues like the world was running out of food due to population growth (malthusian extrapolation theory), running out of oil (last summer when prices hit over $180 per barrel the media said it was “mainly” due to the world running out of supplies) yet the price dropped to $36 proving – law of supply and demand that we continue to be “awash” in oil supplies, global warming temperatures- just because a warming trend was found psuedo-scientists applied extrapolation theory (resulting in the now debunked hockey stick graph) and told us temperatures would continue to rise for the foreseeable future- (wrong again). So, all I'm saying is that one- including the media, should take a balanced view regarding the economic growth of China, the numbers won't last, and that is the point of my article- of how simplistic the media touts the Chinese overtaking of auto sales- as I point out they are not “really” comparable numbers- yet.
Just for your reference:
35-45% of vehicle sales in 2008 in China by: JAC, BYD, Cherry-QQ, Jinbeij, Dong Feng and SAIC were of vehicles that were
0.8-1.1 Liter engines, 47-80 hp, weighing 900-1,000 kg which is more comparable to my lawn tractor at 26 hp and almost 600 kg, or a gas powered golf cart at 500 kg and 300cc engines running at 18-25 hp. Compare that with the best selling American cars which average 1.8-2.5 Liter engines, 160-180 hp, and about 1,500 kg- or with trucks- which are about half of US auto sales- at 3.5-6.2 Liter engines, over 3,000 kg and 180-300 hp. You simply cannot compare the bulk of Chinese vehicle sales to American vehicles which are double to triple the volume and capacity of Chinese vehicles. Again, its akin to my analogy between reporting the sales of Yachts and rubber rafts equally as “boats.”
If you “removed” this class of Chinese vehicle (referenced above), China auto sales – of “comparable” vehicles would stand at approximately 45-50% of American sales- even with the current American slump in sales.
Well, Chinese sales is expected to top 13 million this year vs about 10 million for American sales. So, you're saying the lower 35% - 45% is about 900-1000 kg? What are the comparable vehicles weights of the lower 35% -45% of American vehicles? My Toyota Coralla weighs about 2400 lbs, so about 1150 kg. Slightly larger than the range you gave for Chinese cars. And there are quite a large number of Coralla weight cars on American highways. Also, it sounds like you counted China's lighter cars as having zero contribution in the count. Can we take 80% of their numbers since the lighter Chinese cars are about 80% of a Coralla in weight? Also, guess where the largest market is for GM vehicles? It isn't the United States. The answer is: China. So, while I do agree with some of your points, it still appears that China deserves the title of largest auto market in terms of quantity. Though, I will agree, not in market value.
In regards to Japan, during the height of the economic hype behind Japan, I agree the hype was overblown. Back then, I didn't believe it for one simple fact; Japan's population was less than half that of the US. And in another 20 years, will be about 1/3 that of the US. However, China's population is over 4 times that of the US and over 10 times that of Japan. So, there's no comparison in terms of the potential between the two countries (China vs Japan). And yes, China may not have 8-10% growth for the NEXT 100 years or even the NEXT 50 years. But for the NEXT 20 years, absolutely possible. It has been true (8-10% growth) for the last 30 years. Who is to say the limit is 30 years and not for a TOTAL of 50 years. And as far as the US having near zero growth for the next 10 years, it isn't likely, but it isn't out of the question either. Or out of the realm of reasonable possibility. Also, lets not forget the reminibi is expected to appreciate once the global economy recovers. And it could very well double in that 14 year time frame. I personally believe (and strongly so) that China will be the largest economy by 2025, and likely by 2020 (11 years from now). China's per capita GDP only has to be slightly larger than Mexico's per capita GDP (relative to the US today) for China to have a larger GDP than the US.
Things can happen quicker than expected. Even the Chinese themselves predicted that Chinese auto sales, in numbers, would exceed the US by 2018. Who would have guessed, least of all the Chinese, that they would exceed the US 9 years earlier. Lets not forget that nearly all commodities, China is a huge consumer, setting up a huge economic foundation for the future. China now consumes half the world's steel and over half the world's cement building infrastructure. I don't see this fact changing over the course of the next couple of decades.
In many ways, I can understand the naysayers, China, afterall, is still a relatively poor country. However, I do believe, once people's minds are made up, to make changes, changes can and do occur quite rapidly.
Yes I mainly agree with you and my main focus of the article was the media's "superficial' treatment of such an important milestone.
China could very well do all those things and more, however, my point- regarding extrapolation type thinking- is that China has some pretty big icebergs which are currently "below" the water- and thus- hardly mentioned by mainstream media- why- because it kills the great story of "hyping" China, the way climate change was/is hyped, the way Japan was hyped, Enron, etc. etc.
Here's my point- JUST because China has a large population and a few other factors that can/would facilitate growth- that in of itself does NOT guarantee future growth. I could point to countries in similar situations like Brazil, Argentina, Philippines and INDIA, who had similar conditions and were years ago touted to be up and coming world economic powers because of their factors of "potential." However, due to other negative factors - their growth was halted, staggered and their "potential" was not realized.
Again, this is not to "push" China down for the sake of it, it's keeping a balanced view as when one lives in China, one sees another side of the "headlines" that are touted in the American media.
Yes, nothing is guranteed. And the potential for China to fall into a Brazil or India type situation is possible. But a South Korea, Taiwan, Singapore, or Japan situation is possible too. While I agree most articles hype China growth as a foregone conclusion, I believe China is likely to follow the path of Japan and the Asian Tigers as opposed to the countries previously mentioned. So, while I agree with your wording that China's growth is not "guranteed", I believe China, despite their large and potentially damaging iceburgs, they are LIKELY to follow the path of Japan into developed world status. And because of their size (e.g., China;s population), as they reach developed world status (or close to it), they will definitely surpass the US in GDP. And by quite a large margin. Did you know, that as recently as 2003 or 2004, the UK's GDP was larger than China's? Today, China's GDP is nearly twice as large as the UK's (I'm speaking in nominal terms too, not PPP). And official GDP statistics shows that Japan's GDP was 10 times larger than China's back in the late 1980's. China is expected to surpass Japan either this year or next year to become the second largest economy in the world. So, while I totally agree with you, that nothing is guranteed, the question then becomes, how likely is China going to surpass the US in GDP. Not guranteed, as the hype would suggest. But is it likely? Absolutely. And I would still be willing to bet that China could be the largest economy by 2020. And nearly as large as the combined economies of North America and Europe by 2040.
Hi James. The latest research from Morgan Stanley shows approx 25% of Chinese car sales YTD are from Chery, BYD, Geely, Tianjin, Great Wall, Brilliance, Chang'An, and Hafei. VW/Audi are the biggest sellers with 17% market share. VW/Audi, GM, Toyota, Honda, Hyundai, and Nissan have a combined 54.5% market share. If you contact me or leave an email address I'd be pleased to send you a copy.
Yes, "many" variables "could" happen. But, if you live in China you realize that there are THREE enormous needs that are missing in China- Pensions, Health Care and Social Safety Net. These are not small items- they are privately paid for about 100-150 million people, another 80-100 million have "some" of that coverage from the government. Almost a "billion" lack those gigantic societal needs which - IF - given to the people- would certainly drag down growth rates as capital investment funds and government-via-bank liquidity would dry up- therefore, no heaps of liquid cash to keep the pyramid scheme going. "IF" however, the pyramid scheme continues- via truck loads of liquidity thrown into speculative sectors of the economy- via SOE's, then- yes- the economy "could" continue to BOOM, but- you would have 800 million have-nots- and just re-created the situation in Brazil, India and Russia where only a "small" percentage of the population enjoys the wealth of the nation. So, that again- is not in comparison to dynamic economies- which over- let's say 10 year time periods- bring up the socio-economic status of ALL sectors of their society- namely- the USA, Canada and Australia.
Greg, well the numbers of those individual companies ring different- to 35-45% of reported sales- YTD, however, even taking your number of 25%- that equates to 3.25 million vehicles which would make sales of comparable autos about "even." The overall point is that 3.25 million cars- or 5 million cars NOT being comparable is pretty sizable number NOT to be even mentioned in the dozens of mainstream articles you can google. That, as I already said- is the main point of my article.
I am aware of the lack of social safety nets, pensions and adequate health care system in China. However, I believe providing them will actually increase China's GDP. And this is not me saying this, this is from American officials at the highest level (with Ivy League economics degrees) advising Chinese leaders to provide those things. They advise the Chinese government, that as these benefits are provided, people can freely spend and enjoy life. For now, what happens, is they sock it away, and the money has nowhere to go except to buy foreign debt. So the money cycles back OUT of the country.
I'm still unclear what you are saying in your previous posting. We both agree that nothing in life is guranteed (e.g., China's growth is not guranteed). However, are you saying that China is NOT likely to catch up with the US in total GDP within the next 14 or so years? My assertion all along as been, the odds are IN China's favor that they will continue to develop their economy and for the most part, high single digit growth for two more decades. And likely catch up with the US in total GDP in 14 years. And along with major readjustments of their currency. Could go from 6.82 yuan/dollar today to 2 yuans/dollar by 2030. All the while, maintaining an average of high single digit growth. Not guranteed, but I believe a likely scenario.
Are you saying, this type of scenario is UNLIKELY?
One last point; China is working to address those three icebergs. They are long term fixes, but I believe they will be addressed over the course of time.
I think that if China were to make massive investmets- across the board for those three missing social requirements, it would dramatically slow growth in the short and medium term, but yes- over the long run- more than 14 years- would provide the economic superstructure for long term stable growth.
Now, "selective" (meaning- not free market initiated) mass liquidity drives speculative sectors of the economy which results in immediate positive effects in the economy. However, much of that growth is NOT productive growth, meaning- manufacturing and exports are NOT expanding- in the current crisis- 3 factories are closing for 1 new factory opening. No, I do not believe China would catch up to the US in terms of economic size- except if , as I already mentioned originally- and in your comments- the RMB values upwards- just as Japan's did years ago.
There is a difference in what you say- "develop" and economic growth. I think the Chinese economy will continue to "develop" and "grow" but that major dislocations in the next ten years will not make 8-10% growth rates possible. My prediction is that over the next 14 years- the statistical average will be about 5-6% which is not sufficient to bring the 800 million still in poverty into modern China, nor provide enough "natural" employment for the work force. So, over the next 14 years- my answer is NO, I do not believe your scenario is "likely" , it's possible- but as I say, major problems in the banking sector- with over a "trillion" dollars worth of bad debts- (that is 25% of China's economy) and non-performing loans, very speculative real estate markets and lack of transparency in equities- there will be more than one banking crisis and various bubbles collapsing in various sectors which over the next 14 years will bring down the statistical average growth.
The good side is that if China learns and reforms as a result of those crisis- then long term stable growth is assured- if they do not reform- then they are destined to slow down and not reach their potential as Russia, India, Brazil, Argentina, Indonesia, Philippines.
Statistics from the China Association of Automobile Manufacturers (CAAM) show that the smaller cars, with engine capacity of, or less than, 1.6 liters, contributed 85 percent of the sales increase in the domestic auto market. Most of the best-selling cars in China are smaller cars.
The association estimated that the stimulus measures boosted the sales of smaller cars by 2.6 million units this year
5-6% growth for China is possible. Its robust even for a developing nation. And I am aware of China shutting factories down. But are you also aware, that a three to one closing and opening of factories doesn't necessarily mean China's days of a expanding export nation is over. China's exports amounts to about $1000/per person. But the days of China trying to increase it higher through labor intensive industries are over. We won't see ever expanding Chinese products at Walmart. However, what is happening is a quiet revolution of sorts. Where China is slowly cutting into industries reserved only by the developed nations. I wouldn't be surprised, that by 2020, China's exports will MORE than double, likely triple, by 2020 in DOLLAR VALUE. Not by volume, but dollar value.
And at 800 million peasants out of a population of 1.37 billion, that still leaves 570 million urbanites or city dwellers. But I personally believe, the city dwellers are over 700 million (based on other sources and my own personal extrapolation). I recently read estimates that 1.5-2 million people a month are leaving the countryside and into the cities. I personally believe it could be higher, maybe 2.5 million/month. At 2.5 million per month, over 11 years, that's adding another 300+ million into the cities. So, a potential of one billion city dwellers in China is possible. Most estimates places China's urban dwellers at 800 million by 2020, but as usual, China is typically underestimated.
If my estimate of a billion in the cities by 2020 prove correct, and add to the fact that China's industry across the board will be entirely different than today, it's very possible for China to have an economy larger than the US by 2020. And if that level of movement were to occur, then 8-10% or even more is possible PLUS an ajustment in currency where instead of 6.82 yuans to buy a dollar, it could be 4 or 5 yuans to buy a dollar.
As you have said, there are alot of hiddens that people don't see, and I believe there are hiddens that could be in China's favor. I remember, prior to the global economic crisis, Russia's auto market was the fastest growing in the world. Russia's market was smaller than China's, but known across the industry to be growing faster. Fast forward two years later, and Russia's auto mareket plummetted 50% and China's expanded 46% from 2008 to 2009. This is a case where the hidden's and the unknown's played in China's favor. And I believe it will be true in regards to China becoming the world's largest economy by 2020.
I do believe the pie will get bigger. Compare global auto production prior to the current economic crisis (60-70 million/year) and compare it to 1950 (7-8 million/year). Who is to say in another 50 years, global auto production wouldn't be 300-400 million/year or so.
