First-tier cities have all implemented car purchase restrictions

One of the richest cities in China has announced new vehicle sales restrictions, highlighting another growth constraint on the auto industry that has felt the effects of the economic slowdown.

Shenzhen, located in South China's Guangdong Province, is the last city in China to implement auto license restrictions in its four “first-line” cities—per capita gross domestic product (GDP)—to follow the pace of Beijing, Shanghai, and Guangzhou.

According to the regulations announced on Monday and effective immediately, Shenzhen will allocate only 100,000 license plates each year through a shake and bid. This city of 15 million people currently owns 3.1 million private cars.

20% of the Shenzhen license plate index will be reserved only for electric vehicles, which is consistent with China's efforts to solve the problem of traffic congestion and pollution. The city is home to BYD's headquarters, which is China's best-known manufacturer of new energy vehicles. Yesterday, the Ministry of Finance of China extended the subsidies for electric vehicles for another five years.

Existing car owners will be able to transfer the license plate to the new car, but this "replacement" purchase is expected to total no more than 250,000, making the total sales of new cars in Shenzhen reach 350,000 next year. This will mean a 1/3 decline from the sales of about 500,000 cars this year.

“Shenzhen did not give any buffer to consumers,” said Yale Zhang, an analyst at Automotive Insight in Shanghai. He added that “consumers in other cities will be busy buying cars” to avoid being caught off guard by similar sudden restrictions. There are some smaller but still rich Pearl River Delta cities around Shenzhen, and the traffic congestion in the entire Pearl River Delta has been deteriorating.

However, this non-regular restriction may further hinder the growth of the world's largest auto market. This year's new car sales are expected to increase by about 7% to 19,200, which is in line with the overall economic growth rate of 7.3% in the third quarter, which is the slowest quarterly growth rate in more than five years.

Dealers feel the most deeply about the impact of slowing growth. They often do not have much bargaining power, but they have begun to unite and require auto suppliers to provide more favorable conditions. According to the China Association of Automobile Manufacturers, inventory of unsold vehicles increased by more than 30% in the first 11 months of this year.

Automobile manufacturers and distributors are now turning their attention to the poorer cities in China to achieve growth. According to Bernstein Research, eight out of the ten fastest-growing automotive markets in China last year were inland provinces.

More than 80% of China's population lives in areas with a per capita GDP of less than 4,500 U.S. dollars, while the per capita GDP of such cities in Shenzhen reaches 13,000 U.S. dollars or more.