According to the China Association of Automobile Manufacturers, auto sales in May stood at just 199,900 units, a 17 percent drop from April. Output fell to 199,800 units in May, down 15.4 percent from the previous month.

The gloomy scenario came after an announcement by the State Development Planning Commission on May 20 that it had relaxed controls beginning on May 10 and allowed domestic manufacturers full latitude in determining prices.

The government's intention in deregulating had been to stimulate demand in the auto sector but the decision has had the opposite effect.

Jia Xinguang, a senior analyst with the China Automotive Industry Development Research Institute, said the sudden market downturn was a result of unmet expectations. Consumers were looking forward to a drop in auto prices after the announcement but manufacturers had not actively responded, he explained.

"The announcement reinforced consumers' expectation for further price cuts and made them postpone purchases, although the government had in fact already acquiesced in dozens of price cuts by carmakers over the past two years," Jia said in an interview.

According to a recent survey by the Beijing Asian Games Village Automobile Exchange, the largest car exchange in the city, conducted before the deregulation, half of Beijing's consumers said the announcement would delay their purchases and one-third believed the announcement would trigger a new price war between manufacturers.

Feng Minhua, a Beijing resident who was inquiring about auto prices yesterday in the exchange, said: "I believe the prices will decrease soon. It is stupid to buy a car right now."

However, major carmakers like Shanghai Volkswagen, Shanghai General Motors, FAW (First Automotive Works) Volkswagen and Dongfeng Citroen, have insisted they would not cut the prices of their products in the near term.

Only a few manufacturers cut prices after the announcement. Zhejiang-based Jili Group, the sole private carmaker in China, cut prices by 4,000 yuan (US$482) across the board.

Su Hui, general manager of the auto exchange, said the announcement had placed tremendous pressure on his exchange's businesses.

"Our average sales a day have dropped to 105-110 autos from around 150 units a day before the government made the announcement," he said.

The exchange's sales in May dropped to 3,178 units compared with 3,704 in April.

"Some consumers even asked dealers in our exchange to return their money so they could wait for prices to drop," Su said.

Jia said the "tug-of-war" between consumers and manufacturers would continue in June.

He predicted sales in June would remain similar to May in the wake of the announcement.

The association said 57,200 sedans were sold in May, a decrease of 17.8 percent from that of April. The sedan output in May declined by 1.6 percent to 56,400 units.

Total auto sales around the country from January to May this year amounted to 998,500 units, an increase of 22.3 percent from the same period in 2000, the association said.

Output during the period also increased by 17.6 percent year-on-year to 987,100 units, it said.

(China Daily 06/18/2001)