SHANGHAI -- China’s new-vehicle market has contracted for 12 straight months amid slower economic growth. This week, it became clearer that automakers and suppliers must prepare for a longer-than-expected market downturn as Beijing moves to discontinue a key stimulus plan that has boosted the economy.
The Politburo, the top echelon of the Chinese Communist Party, decided Monday not to “use the property market as a tool to stimulate economic growth,” the official Xinhua news agency reported Tuesday.
That means Beijing is abandoning its long-standing practice of managing the domestic economy by adjusting policies over the real-estate industry.
In the past, whenever the economy showed signs of weakening, the government eased controls on real-estate development and made it easier for home buyers to obtain bank loans.
The practice has proved highly effective.
It also worked in the first half of this year: After relaxing regulatory controls, investments in real-estate development across the country jumped 11 percent from a year earlier, according to the National Bureau of Statistics.
The economy, benefiting from the healthy investment, managed to grow 6.3 percent in the first six months despite slowing exports brought by U.S. tariffs.
The Politburo’s decision is intended to establish a sustainable growth path for the domestic real-estate market, Xinhua reported.
The policy change may help the real-estate industry in China but it is bad news for the domestic auto industry.
After ending the first half of 2019 with a slump of 12 percent, new-vehicle sales in China are poised to shrink for the second straight year.
The China Association of Automobile Manufacturers last month predicted that China’s 2019 new-vehicle sales will drop 4.7 percent to 26.68 million.
Without the support of the real-estate sector, the Chinese economy will have more steam to lose. And in tandem, new-vehicle sales may sink lower than the trade group’s forecast and the market contraction is likely to extend well beyond 2019.