SHANGHAI, Jul. 3 (SMM) -- On late June 30, the Guangzhou Municipal Government announced that Guangzhou will, from July 1, 2012, trial moderate regulation of total medium-to-small cars in the city for one year, during which the city's quota for new small passenger cars are set at 120,000 units. Guangzhou follows Shanghai, Beijing and Guiyang to become the fourth Chinese city introducing auto purchase (road license) limit.
Growth in car ownership has added huge traffic pressure in China, with severe congestion seen in many cities. Prior to this, Shanghai introduced road license auction to limit the number of new cars on road between 8,000 and 9,500 per month. A license is now sold for over RMB 60,000 in Shanghai.
Beijing has introduced a lottery-type road license issuing system with a limit of 20,000 per month, which has dragged down Beijing’s car sales from 850,000 units in 2010 to 250,000 units in 2011. Although the 850,000 cars sold in Beijing account for only 5% of China’s total, the follow up of Guiyang and Guangzhou means auto purchase limit is likely to become a trend in second- and third-tier cities, which will have a considerable impact on China's automobile industry.
First of all, the limit of purchases and new road licenses will undoubtedly have a big impact on China's automobile production and sales, thereby affecting demand of automotive steel. In 2011, Guangzhou issued 19,000 road licenses per month. The figure will drop near 10,000 after introduction of auto purchase limit, by half. Taking into account the current status of traffic congestion in other cities in China, if similar policies are introduced in other cities in the future, China’s automotive industry will experience an even harder hit.
In addition, if license auction policies are put in place in more cities, producers of low-end domestic-brand cars will feel another blow. This is due to the fact that buyers of imported high-end cars are less sensitive to road license prices while those of domestic low-end cars may abort their plans for adding a car in such a case.