First, in February, the official purchasing manager index, or PMI for short, decreased slightly for the second straight month to 50.1, a number echoed by the HSBC PMI, which dropped to 50.4 from the previous 20-month high of 52.3 in January. Industrial production and retail sales growth also softened between January-February. This means that the economic recovery is unbalanced and that investment has remained the key driver of the economy.
Second, inflation rose to 3.2 percent year-on-year in February due in part to the Chinese New Year holiday. The central bank has shifted its focus back to inflation and has begun to drain liquidity from the market. Moreover, in the face of the renewed risk of a property bubble, major cities have started to tighten controls on housing loans.
According to numbers from the China Automobile Dealers Association, the de-inventory process at dealers has already ended and dealers are expecting inventories to increase going forward.
With all the factors in mind, we keep our forecast for the light vehicle market unchanged, continuing to foresee an annual growth rate of around 10 percent in 2013. A normalized second quarter is expected to follow the robust first three months of 2013.
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