The Chinese car market suffered its steepest monthly fall in more than six years as the country heads for its first annual decline in three decades.

The world’s biggest auto market, which has recorded steady sales rises since the 1990s, is suffering from the removal of government subsidies on vehicle purchases this year, and weaker consumer sentiment as the Chinese economy slows.

It has been undermined further by the a deepening trade war with the US and a faltering stock market, say industry executives and analysts. 

The market experienced its fifth consecutive monthly fall as it dropped nearly 14 per cent in November compared with a year earlier, according to the China Association of Automobile Manufacturers.

“Since June, every month was worse in the total market, and this continues in November,” said Jochem Heizmann, chief executive of Volkswagen China on Tuesday.

Volkswagen predicts a new record year for its performance in China but expects China’s total passenger car market to decline by 4 to 5 per cent by the end of the year, added Mr Heizmann.

Volkswagen predicted car sales in the overall market to remain flat in 2019 because of the trade war between Beijing and Washington.

A big portion of the market underperformance is related to the trade war, but not directly connected to the financial impact of higher tariffs from trade tensions, according to Mr Heizmann. 

“[It’s] connected with the psychological effect,” he said. Analysts say consumers are unsure as to how long the trade war will last and whether it will further escalate.

Among foreign and local carmakers, only Volkswagen and Toyota’s joint ventures with local partners were able to sell slightly more cars than last year; every other carmaker is witnessing a decrease in this month’s sales. Geely, China’s third-largest carmaker which owns Volvo, experienced a monthly decrease in sales for the first time this year.

“The major reason for the weakness is the expiration of a tax rebate that stimulated car sales in 2016-17,” Gavekal Dragonomics, a consultancy, said in a report. “There has already been debate about whether to revive the tax rebate to help the industry. But another such stimulus would be unlikely to have as much effect as previous rounds, as many car purchases have already been front-loaded.”

About 29m new vehicles were sold in China last year compared with 19m in the US. Foreign and imported brands had a 62 per cent share of the Chinese market in the first half of this year, according to McKinsey.

Industry analysts say consumers have become extra careful when making big-ticket purchases, such as cars, because of the grim-looking economy.

“With the housing market being almost entirely frozen, liquidity becomes a big issue for many Chinese people. There’s a growing tendency to put consumption on hold due to uncertainty about the future,” said Thomas Fang, Shanghai-based partner at consultancy Roland Berger.

Shares have suffered too, with China’s Shanghai stock index and the CSI300 21.6 per cent lower compared with the previous year. 

This has not been helped by the US-China trade war, which was heightened when Washington stepped up its campaign against Huawei, one of China’s important technology champions, over allegations of violating Iran sanctions.

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