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Trucks left in the dust as China vehicle market races ahead

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China's automotive industry continued to power ahead in the first half of this year, but one sector has been left behind.

Sales of trucks and buses declined over the first two quarters of 2014, in a development that analysts blame on commercial vehicle makers' greater exposure to slower economic growth and stricter emission standards.

The China Association of Automobile Manufacturers reported on Wednesday that first-half sales of passenger cars increased 11 per cent to 9.6 million units.

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The strong growth has surprised industry executives and analysts who expected China's car market would cool after growing 16 per cent to 18 million units last year, making it 10 times bigger than India's.

Sales of commercial vehicles, however, are declining. They fell 3 per cent over the first six months to 2 million units, according to CAAM, the leading lobby group for domestic vehicle manufacturers.

China is the world's largest market for trucks, accounting for almost half of global sales of those weighing 14 tons or more. About 600,000 heavy-duty trucks were sold in China last year, compared with about 200,000 in the EU.

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But that is down from an annual sales peak of almost 900,000 in 2011, and some industry observers forecast further decline as Chinese truck operators become more efficient.

"A lot of trucks are just standing idle waiting for goods to transport," said one European automotive executive. "Once vehicles start to be used more productively, the total market is going to shrink further."

Leading commercial vehicle makers are still rushing into China, in part because their joint ventures there focus on mid-tier trucks that are expected to take market share from low-end domestic models facing pressure from stricter environmental regulations.

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Sweden's Volvo Group has agreed to pay Rmb5.6 billion ($900 million) for a 45 per cent stake in the commercial vehicle operations of Dongfeng Motor.

The deal, signed in January 2013, was conditionally approved by China's National Development and Reform Commission this year. MAN has partnered with SinoTruk while Mercedes-Benz has a joint venture with Foton Motor.

Many analysts link the commercial vehicle sector's slower growth to the performance of the broader economy. China's gross domestic product expanded 7.4 per cent year-on-year in the first quarter, decelerating from 7.7 per cent growth in the last three months of 2013.

The slowdown has been most severe in cities and provinces traditionally reliant on coal mining and other heavy industries, affecting demand for commercial vehicles. Taiyuan, a provincial capital in the heart of China's coal belt, recorded first-quarter economic growth of just 0.1 per cent.

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"The decline in commercial vehicle sales is mainly due to the economic slowdown and will probably be even worse in the second half," says Wang Liusheng, an automotive analyst at China Merchants Securities.

Higher prices stemming from stricter environmental regulations are another factor, according to analysts. After repeated delays, China's industry ministry confirmed in April that a new emissions standard – equivalent to the EU's Euro IV standard – will come into effect in January 2015.

Some Chinese cities such as Beijing are moving even further ahead, with plans to force trucks and buses to adhere to a higher Euro V standard.

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"Light trucks once cost as little as Rmb50,000 but a [Euro IV] engine can increase their price by Rmb20,000," said John Zeng at LMC Automotive, a consultancy.

"Buyers will have to face the fact that cheap commercial vehicles have had a terrible impact on the environment and are not sustainable. Prices have to increase."

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