Expansionary Policies Provide a Tailwind to Mainland Chinese Truck Market, but Challenges Remain

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The pre-loaded usage and offer chain disruptions have
clouded the mainland Chinese medium- and large-duty truck (MHDT)
current market since last summer months. With gradual easing of electricity shortages
and latest injection of plan stimulus, manufacturing of MHDT observed
narrowed contraction from November 2021 and will accelerate
restoration in 2022. In our February forecast, we enhanced the
mainland Chinese MHDT generation for 2022 by 5% to 1.18 million
models, still a decrease of 19% in contrast with 2021.

Expanding fiscal expending provides to new need

To counter mounting financial growth headwinds, fiscal steps
have been shifted from de-risking to stimulative considering that the fourth
quarter of last yr. In accordance to the 2022 governing administration do the job report,
the tax rebate and minimize offers for households, smaller- and
medium-sized corporations, as well as industries these types of as
producing, companies, and transportation are prolonged from CNY1
trillion in 2021 to CNY2.5 trillion in 2022. In the transportation
sector, preferential freeway tolling and incentives for logistics
will continue on to be a element of the scheme, facilitating trucking
recovery to the pre-pandemic norm. In addition, local governments’
borrowing, the key resource of infrastructure expenditure, could
access CNY4.14 trillion below loosened oversight and early issuance
of special-reason bonds. Coupled with CNY640 billion of central
finances for major construction tasks, these will allow for a balanced
development of infrastructure financial commitment in 2022. Concurrently, the actual
estate investment decision will be accelerated by the ongoing leisure of
constraints on the housing industry, reflected in consecutive
reduction of mortgage loan charges and raise of city-degree supports to
shore up buys. Development truck desire is consequently expected
to go up by 4-6% in 2022 from a 1% growth in 2021, including all over
15,000 units to the February outlook.

Fantastic-tuned environmental policies accelerate replacements

The rigorous implementation of the “Dual Control” of vitality
consumption volume and intensity across strength-intensive industries
in 2021 that has tremendously aggravated electric power shortages and curbed
industrial output is eased in 2022 to stabilize industrial progress.
The purpose of “Twin Command” plan, turned aim on reduction of
carbon emission. Current limitations on yearly vitality expenditure
of industrial enterprises will be taken off, and some of them will be
sponsored with inexperienced loans. Meanwhile, the decarbonization agenda
for industries this sort of as steel is altered to be less intense,
with the deadline of peaking carbon emission becoming postponed by
five yrs to 2030. In contrast, downstream rules on diesel
vehicles develop into stringent. Soon after forcing out all around 1.3 million models
CN1-3-amount vehicles in important regions by 2021, the Condition Council vows
to generally period out all down below-CN4-amount vans across the nation
by 2025. In unique, Shandong Province, which promises to have
done elimination of CN3-level vehicles, will start to clear
CN4-amount trucks from this year. What’s more, for applications these as
transportation of bulk commodities, municipal building, and
sanitation, CN5-degree trucks are purchased to be upgraded or
electrified in some regions for the duration of 2022-25. Considering our
earlier assumptions on ongoing clearance of CN1-3-level trucks,
the new guidelines are estimated to bring about 50,000 units far more
truck replacements to 2022.

High inventories and multimodal transportation weigh on the
baseline

Owing to OEMs’ selling price-off promotions, the pre-acquire activity in
preparation for the CN6-a diesel emission rules had been tremendously
magnified, resulting in an more than-storage of CN5-stage vehicles across
seller channels in the initially 50 percent of 2021. By December 2021,
nationwide MHDT inventories are calculated at 275,000 units, however
way greater than the standard charges of 150,000-170,000 units. Roughly
one third of them are CN5-degree vans, irrespective of a nationwide closure
of registrations on January 1, 2022. As expected, the higher
stock strain will deepen into the initially quarter of this year,
ahead of full clearance of CN5-amount new vans (bought as employed trucks)
in the current market. On the other hand, the transition of 440 million
tons of road transportation to railway and waterway transport have produced
share of street freight turnover amid all transport modes to drop
from 36% in 2018 to 32% in 2021. Such composition will be further
optimized with projected acceleration in railway and waterway
transport for bulk commodities and containers during 2025.
Accordingly, very long-term baseline desire for weighty vans will be
weakened by up to 30,000 models .

With de-stocking of CN5-stage new vans and coverage stimulus
having effect, we predict MHDT output to pick up steam from the
second quarter. Nonetheless, new outbreaks of Omicron variants and
geopolitical tensions may possibly increase dangers in the current market. By significantly, the
pandemic lockdown has led to FAW’s Changchun plant to suspend
creation for at minimum 4 days in March. In the meantime,
industrial supply chain and logistics are facing growing
troubles from surging power and commodity charges brought about by the
Russia-Ukraine conflict. While regional OEMs could reward from
higher exports to Russia in the course of the Western sanctions, the
incremental manufacturing will be confined, specified a gloomy outlook for
the location in typical.

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Posted 22 March 2022 by Cassie Liu, Automotive Analyst, IHS Markit&#13
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This article was printed by S&P Worldwide Mobility and not by S&P Worldwide Rankings, which is a individually managed division of S&P International.

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