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The world is looking to China for strength. China is taking a breather. By Bertel Schmitt, CEO Sinamotive Group (HK) Limited.

What a difference a month makes. A few weeks ago, the big automakers still looked at China as a threat. When auto sales tanked last month in the U.S., and fell in Europe, automakers looked to China to save their numbers. China won't be able to make up for the losses in the West. According to statistics released by the China Association of Automobile Manufacturers, passenger vehicle sales in China fell for a second month in a row in September. They dropped 1.4% from the same period in the prior year to 552,800 vehicles. There are worries about a demand slowdown in a country where double digit growth rates used to be the norm.

Still, sales of passenger vehicles in the January-September period increased by a healthy 11.4% to 5.1 million units. 2007 saw a rise of 21.8%. The September decline in passenger-vehicle sales indicates a full-year sales growth in the single digits. The decline came as a surprise, because September is usually a strong sales month in China, when consumers buy cars ahead of the Golden Week holiday.

The notable exception was Volkswagen AG. After lackluster sales in prior years, VW surprised with 772,783 vehicles sold in China from January to September, a 13% rise compared to the same period in the prior year. Volkswagen's Audi luxury brand contributed strongly to the parent company's sales. Volkswagen China plans to sell a million cars in 2008, an increase of 9.8% from the 910,491 vehicles in the prior year. According to a company spokesman, Volkswagen plans to sell more cars in China than in its home market Germany in 2008.

The pause in sales doesn't mean that the Chinese auto market is saturated. Far from it. By the end of 2007, the total number of all vehicles on the roads of China reached 57 million units, up 14.3 percent from the year 2006. However, the total includes 14.68 million three-wheeled vehicles and low-speed vans. Currently, China's vehicle ownership per thousand populations is below 50. The number is 740 in the United States, and more than 500 in Europe. China has a long ways to go before reaching saturation. Total output of the world's automakers is rated at 69 million motor vehicles annually. Even if the whole world would produce for China only, it would take more than ten years to saturate China's market.

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About the author: After having worked as a Marketing Consultant for Volkswagen AG for three decades, Bertel Schmitt changed sides in 2005 to found Hongkong, Beijing, and Hamburg based Sinamotive, a company specialized in sourcing low cost high quality auto parts in China. The company is funded by a private equity group.

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