The Chinese economy, albeit slowing, still grew 7 percent in the second quarter. But passenger vehicle sales in the country started declining in June and have shown no signs of immediate recovery -- July deliveries dropped 6.6 percent year on year.
What has caused the new-car market to severely underperform China's economy?
It is the sharp fall in domestic stock prices and indexes, as indicated by data released this week by an official organization that settles stock transactions in China.
Beijing has sought to boost stock prices to stimulate the flagging domestic economy. But the government's measures have produced a market rout, which has wiped out a big portion of middle-class families' wealth that otherwise is used to buy vehicles.
With no other effective ways to boost the weakening economy, the Chinese government cast its eyes on the domestic stock market late last year.
China's small- and medium-sized businesses have long suffered from high financing costs. The government reasoned that allowing these companies to list on the stock market would enable them to raise low-cost capital, then expand operations and help revive the economy.
It also lifted restrictions this year on the number of stock trading accounts an investor is permitted to open at securities brokerages. Officials of the central bank and stock market regulator told the press how the stock market would benefit from economic reforms pledged by the government.
In the first five months, the central bank also cut interest rates twice, which dampened Chinese families' enthusiasm in keeping their bank deposits.
All this triggered a flow of up to 7.5 trillion yuan into the stock market in the first half. In the first five and a half months, the composite index of the Shanghai Stock Exchange surged 47 percent.
But the market rally didn't last long. On June 17, the stock prices started a downward spiral as institutional investors pared their holdings on concerns about dim economic prospects. From that day until the end of July, the index plunged more than 23 percent.
Until last week, the direct impact of plunging stock prices on new-vehicle sales remained vague and anecdotal. What was known was that the stock market's downturn coincided with the new-car market's decline.
On Tuesday, China Securities Depository and Clearing Co., a Beijing-based organization that tracks and settles stock transactions, issued its monthly report for July. The data in the report show that middle-class Chinese consumers, the main customers for global automakers, have lost huge sums during the stock market rout.
A typical middle-class family has at least 1 million yuan in financial assets (bank savings and stocks). Lured by the market rally earlier this year, many of them invested more than half of their money in stocks.
According to the report, the number of investors holding stocks valued at above 500,000 yuan ($78,125) dropped 24 percent to roughly 3.2 million from June to July. These households are normally the prospective customers of global mass-market brands.
The data also show the number of Chinese investors owning stocks worth more than 1 million yuan, a sizable pool of prospective luxury-vehicle shoppers, slumped 28 percent to 1.4 million during the two months.
The data explain why most global mass-market brands, led by Volkswagen and Hyundai, reported a drop in sales starting in June.
It also explains why sales of luxury brands in general were hit even harder -- BMW's deliveries dropped for the first time in the past decade while Jaguar Land Rover volume plunged one-third from a year earlier in the first six months.
With the economy stagnating and companies posting disappointing financial results, the composite index of the Shanghai Stock Exchange has remained weak, dropping more than 9 percent in the first four days of this week.
The sluggish stock market likely will further erode the wealth of China's middle class and undermine vehicle demand.