China's automobiles sales witness slump amid shortage of car chips

China is witnessing a slump in its car sales even as demand for semiconductors and prices of raw materials have been increasing, straining the country's economic recovery and weighing on global trade.

Sales of passenger cars in June were down 5.1 per cent from a year earlier to 1.58 million vehicles, The Wall Street Journal reported quoting China Passenger Car Association.

April-June sales were up 2.3 per cent from the same period last year, when the market began to recover from a nationwide pandemic lockdown.

Much of the June decline could be attributed to supply constraints that have emerged in recent months, the association said. The historic chip shortage has crimped production for automakers around the world, including some in China, the group said.

Japanese carmakers were among the hardest hit by the chip shortage last month. Nissan Motor Co.'s China sales were down 16 per cent in June from a year earlier, while Honda Motor Co.'s were off 17 per cent. Honda cited component shortages.

The car association said it expects supply constraints to ease in the second half of the year, the WSJ reported further.

Nikkie Asia reported that until now, the global chip crunch had only a limited impact on the Chinese auto market. Many vehicle plants resumed operations after COVID-19 infections subsided in the spring of 2020, enabling them to secure semiconductor components earlier than factories overseas.

With auto sales recovering in China, "we're prioritizing supplies to Chinese factories," said a source at a large Japanese automaker, echoing decisions by many multinational players.

However, the global chip shortage persisted longer than predicted, and the impact is starting to creep into Chinese automaking.

"We want to lift output of popular sport utility vehicles, but we're forced to cut production by the shortage of semiconductors," an executive at state-owned Chongqing Changan Automobile said. Delays in European parts supply led output to sink 10 per cent on the year for May and 15 per cent for June.

The Chinese auto industry, including associated services, accounts for an estimated 10 per cent of gross domestic product. Knowing that a sales slump would be sure to hurt the overall economy, the government has come out with measures to stimulate demand.