How Tariffs Will Impact China’s Auto Lending
SHANGHAI — China will remain the largest market for vehicle sales, but the impact of U.S. tariffs on China’s economy may accelerate the decline of an already slowing economy while adding an outsized effect on the automotive industry, Steve Cochrane, Chief APAC Economist at Moody’s Analytics, said during a session at the Auto Finance Summit Asia 2018.
Although China continues to be the fastest growing economy among the major markets, the government has tightened up access to credit to tame the country’s rising consumer debt — causing growth to diminish.
“Long term, we have to expect that the Chinese market is going to slow as it becomes a more mature economy and as it shifts from low value-added goods to high-value, and as it switches from goods to services,” Cochrane said. “General growth here is 6% to 7%, and in 10-years time you might expect the economy to settle in at a growth rate of 4%. That’s not unreasonable considering the size of the labor force in China is at its peak given the aging population.”
However, consumer spending is slowing, and that means more volatility to short-term changes — such as tariffs.
Moody’s currently predicts that “cooler heads will prevail” and that tariffs will not increase between the U.S. and China. However, if the “worst case scenario” comes to pass and the governments impose 25% tariffs on all goods then it could mean China’s GDP growth will decline by as much as 1% next year.
“That’s still growth, but a percentage point change would be significant for China and the region because of all the trade that is done between Southeast Asia and China,” he said, noting that in the long-term supply chain could shift to more local sources.
What does all of this mean for auto financing in China? Simply put, it lowers consumer spending on loans and their confidence to take out those loans in the first place.
“It would lead to higher inflation, slower job growth, weaker consumer confidence, weaker spending, and weaker demand,” he added.
