Sales growth in China's auto market will resume in 2016 after having stagnated since 2015, while automakers' margins will narrow due to fiercer competition, Fitch Ratings predicted Tuesday.
Reduced purchase taxes and recovering consumer confidence are major driving forces for sales growth, according to Fitch.
China's vehicle-purchase tax was halved from 10 percent to 5 percent for low-emission passenger vehicles, effective from Oct.1 to Dec. 31, 2016.
The tax cut followed weak year-to-date automotive sales in China, with sales in the first eight months of 2015 flat from a year earlier, versus 6.8 percent growth in 2014.
The auto market in September posted its first positive year-on-year sales growth since April this year, official data showed.
Sales grew 11.8 percent to 2.22 million vehicles in October, while output ended previous drops by edging up 7.1 percent year on year to 2.19 million.
SUVs will continue to lead sales growth in 2016, as an increasing number of customers prefer larger vehicles, Fitch said.
Meanwhile, Fitch expected Chinese automakers to see narrower profits in the coming year due to fiercer competition.
The whole auto industry will face pressure on margins as manufacturers add production capacity and newer models, Fitch said, adding the SUV segment would be the most vulnerable as the current fat margins have drawn many new entrants.
Large auto makers, including the Shanghai-based Dongfeng Motor Group, China's second-largest vehicle maker, and Beijing Automotive Group, will stay resilient amid short-term market cycles thanks to their diversified joint-venture and brand portfolios, according to Fitch.
China's automobile market cooled in the early months of 2015 as a result of the economic slowdown, fierce competition and purchase limit policies in first-tier cities.
The government has announced supportive measures to boost progress in core technologies and key components for new energy vehicles.
