OEMs expect van sales to grow after Chinese government relaxes one-child policy

The Chinese government on 30 October eased its 'one-child policy' in favour of a 'two-child policy', 35 years after the formal introduction of the policy in 1980. Automakers are now focusing on what the implications of this policy change will be for future vehicle demand in China.

Several automakers are expecting multi-purpose vehicles (MPVs) to attract more buyers as these vehicles offer more seats for family than other light vehicles, reports Reuters. GAC Motor general manager Wu Song said, "After the roll-out of the two-child policy, I believe the market share of seven-seat SUVs [sport utility vehicles] and MPVs will further strengthen." Meanwhile, Gustavo Céspedes, executive vice-president of the SAIC-General Motors-Wuling (SGMW) joint venture, reportedly said, "The cost of owning two vehicles is high. That is why demand for seven-seat vehicles has grown greatly." Automakers such as Guangzhou Auto Corp (GAC) are working on an MPV, according to the report. SGMW launched the Baojun 730 seven-seat family vehicle in 2014 (see China: 30 June 2014: SGMW launches Baojun 730), adding its strong-selling MPV the Hongguang. The report also says Geely is working on an MPV.

Data from the China Association of Automobile Manufacturers (CAAM) show that, in October, a total of 192,843 locally produced MPVs were sold in China, with a total 1.6 million units sold in the year to date (YTD; January-October), an increase of 7.78% year on year (y/y).

Outlook and implications

The relaxation of China's one-child policy in favour of a two-child policy has been met with mixed reaction. Previously, the government had been concerned that relaxing the relatively strictly enforced law would lead to a 'baby boom'. In 2013, the central government partly eased the one-child policy to allow families to have a second child if one parent or both parents had been children from a one-child family. However, the result was far from that expected by the government, with a low uptake to have a second child. Most of the women and men born after 1980 in urban households were themselves single children, so the vast majority has been allowed to have a second child since November 2013. However, a 2015 survey quoted by IHS Economics and Country Risk claims that 60% of eligible couples were uninterested in having more children.

The report from IHS Economics and Country Risk states, "According to official statistics, 2014 saw 16.87 million births, an increase of only 470,000 (roughly 2.9%) over 2013. The demographic group most affected by the latest announcement will be urban women older than 35, but demographers had estimated that women older than 35 will likely account for only 10–20% of all births. Consequently, the latest announcement is unlikely to have a significant impact on the birth rate or the associated government expenditures and taxation policies."

It is also important to note that rural families in China were often exempted from the one-child policy and by the 1990s rural families were often having more than one child. However, with the latest easing of the policy effective from 30 October, the government has called for officials to "proactively carry out other actions to counter population ageing".

It is unclear what implications the easing of the policy will have for the vehicle market in China. The ‘balinghou' generation refers to those born after 1980—this demographic group is now around 35 years old while the ‘jiulinghou' generation refers to those born after 1990 or those who are around 25 years old now. These two specific consumer groups are already part of major studies by OEMs, with models targeting their demands (see China: 15 April 2015: Shanghai Motor Show 2015: Automakers display vehicles to attract specific consumer segments in Chinaand China: 19 May 2014: A look at Chinese OEMs' shifting market share). However, the easing of the one-child policy is expected to have greatest impact on the consumer group who are older than 35 years old - those born before the one-child policy took effect - and who, therefore, want to give their children a sibling. However, this target consumer group represents only 10-20% of all births in China.

Therefore, the lack of clarity surrounding the implications of the two-child policy gives rise to a number of different models being built by automakers to target different segments of the Chinese vehicle market.

Will the demand for larger vehicles take hold in China? The trend so far is for consumers to go for vehicles with 1.6 litre and smaller engines, albeit many paired with turbochargers. This trend is likely to continue to remain even following the current policy, which offers a 50% tax cut to the 10% new car purchase tax for vehicles with engines of 1.6-litre displacement and smaller.

The overall market for sport utility vehicles (SUVs) and MPVs, including minibuses, together witnessed sales of 10.3 million units in 2014 in China, IHS Automotive light-vehicle sales data show. By 2020, sales in this segment will rise to 15.67 million units, our forecasts show. In 2015, this large group of vehicles will witness a double-digit sales growth rate of around 11.9% y/y, but the growth will then ease to high single-digit growth rates.

The top-selling models are expected to remain the SGMW Hongguang and the Baojun 730, but Great Wall's Haval H6 is expected to gain ground as the third highest ranked model. Already the Haval H6 has witnessed tremendous growth to become the top-selling model in the market in October (see China: 25 November 2015: Great Wall H6 is top-selling model in China during October, VW Lavida highest-selling nameplate in YTD).

Data from the CAAM show that MPVs have witnessed sales growth in the YTD period, but so have SUVs. In the YTD period, two-wheel-drive SUVs have witnessed sales growth of 48.37% y/y, with a total 4.7 million units sold, while MPVs (as defined by the CAAM) have witnessed a total 7.78% y/y growth to sales of 1.6 million units. Crossovers (also called large vans or minibuses) witnessed total volume sales of 913,100 units in January-October, down 20.88% y/y from 1.15 million units in the same period last year. This segment includes SGMW models the Hongguang V, Wuling Hongtu, Rongguang, and the Sunshine. Together, these four models witnessed sales of 517,594 units in the first 10 months of the year, down 10.99% y/y. Meanwhile, in the MPV segment, the Hongguang witnessed sales of 510,846 units in January-October, while the Baojun 730 witnessed sales of 248,376 units.

Our forecasts show that the largest segment of the SUVs, MPVs, and vans group remains the SUV segment. In 2020, the total sales of these three vehicle types will rise to 15.6 million units in China, up from 11.56 million units in 2015. The top-selling model in 2020 will remain the Hongguang with a total of 770,000 units of annual sales forecasted, followed by the Baojun 730 with around 335,000 units. Meanwhile, the Great Wall H6 is expected to achieve annual sales of around 315,000 units, ahead of the Rongguang and the Sunshine.