China vehicle sales rebound in June amid price cuts

China’s vehicle sales rebounded in June, the country’s top industry association said, shaking off weakness seen in the previous two months as carmakers grappled with a rollback in tax incentives that drove strong growth last year.

Total vehicle sales hit 2.17 million in June, up 4.5 percent from a year earlier, while sales for the first half of the year rose 3.8 percent to 13.4 million vehicles, the China Association of Automobile Manufacturers (CAAM) said on Tuesday.

The rise in sales, which industry insiders said was helped by hefty discounting, lends a sheen to the world’s largest auto market, but growth overall is struggling to keep pace with 2016 when the market grew at its fastest pace in three years.

Overall vehicle demand in China would likely grow just 1-4 percent this year, mainly because consumers made purchases last year to benefit from lower tax rates, said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight.

In January, CAAM predicted sales would rise 5 percent this year, slowing from 13.7 percent in 2016, citing the rollback of a tax incentive for small-engine cars and economic pressures. It stuck with that forecast on Tuesday.

June’s rise, however, marks an improvement from April and May, when vehicle sales fell 2.2 percent and 0.1 percent, respectively, registering two straight months of declines for the first time since 2015.

Peter Fleet, Ford Motor Co’s Asia-Pacific chief, told Reuters average vehicle transaction prices in China had fallen about 4 percent in the first half of this year against 2016. “We continue to see negative industry pricing in China,” he said.

Ford is among the foreign brands strong in the small sedan segment that have seen China sales slow this year, others being General Motors Co and Volkswagen AG.

Buyers in China have shied away since the purchase tax on vehicles with engines of 1.6 liters or below rose to 7.5 percent, from 5 percent, at the start of the year.

However, there is one bright spot: sales of new-energy vehicles (NEVs) – all-electric battery vehicles and plug-in electric hybrids – that saw a 33 percent bump in June to 59,000 units, the latest CAAM data shows.

In the first half of this year, sales volume of such NEVs totaled 195,000 vehicles, up 14.4 percent.

China is the world’s largest market for green energy vehicles, with the government aggressively promoting the segment, including spending billions in subsidies, in a bid to fight intense urban air pollution.