China's growth in vehicle sales accelerated in May as the government's economic stimulus efforts continue to deliver remarkable results. Total light vehicle sales in the month increased 41 percent over the same period a year ago, an 11 percent faster growth rate than recorded in April.

May sales of 1.06 million light vehicles - which include passenger vehicles (PVs) and light commercial vehicles - topped one million units for the third consecutive month.

Both vehicles enjoyed rapid sales growth, with 684,000 passenger vehicles sold, up 40 percent year on year, while light commercial vehicle sales topped 384,000 units, an increase of 43 percent from the same period of last year.

While most countries in the world - developed and emerging - suffer through the worst economic conditions in 60 years, China is on pace to grow by 6.5 percent this year, an even more remarkable achievement since China relies so much on the rest of the world to sell its goods.

Conditions have improved dramatically since the beginning of the year, when expectations for growth hovered around the 5.8 percent. The government's commitment to stimulate the economy through fiscal spending and liberal lending practices is boosting the economy and driving vehicle demand higher.

Contributing to strong May sales was the timing of International Auto Show at the end of April. A recent recovery in property and stock prices also increased consumer willingness to spend on big ticket items. Year ago May sales were negatively affected by the earthquake in Sichuan, a fact that also contributes to the rapid relative growth rate in the same month this year.

The mini car, sub-compact and compact car segments continue to feel the positive impact from the tax incentive for 1.6-liter and smaller engine sized cars, with each segment growing by more than 50 percent year on year in May.

Emerging signs suggest the midsize car and MPV segments, more reliant on business purchases, may perform better in the second half of the year if the economy continues to show solid growth.

Insufficient capacity is the greatest concern for producers of hot-selling models, including Beijing Hyundai, BYD and Wuling. These three brands continue to outpace the overall market with growth rates of 83 percent, 218 percent and 83 percent respectively.

Companies producing Japanese brands, apart from Dongfeng Nissan, are finding themselves in an unfamiliar position: Trailing the overall market. Sales of Toyota brand models are down 12 percent for the month of May and 20 percent for the year.

Nissan turnover remained strong in May with sales increasing 54 percent from the same period of last year. Tiida was the second best-selling sub-compact car thanks to its large interior space and appealing exterior. Together with Livina, Tiida helped Nissan capture the largest market share in the sub-compact car segment. The Teana is beginning to intrude on the positions of Honda Accord and Toyota Camry. By the end of May, its volume grew 148 percent compared with the year-ago period. Teana is expected to make the biggest contribution to the growth of the Nissan brand this year.

Looking ahead, early indications from the retail market suggest that sales in June are not as hot as in May, though June sales are historically higher than May. Government efforts to simulate demand are working beyond expectations and a review of full year forecasts will likely lead to an upward revision in July.

The authors are senior market analysts of JD Power Asia Pacific Forecasting

(China Daily June 29, 2009)