China's passenger-car market is suffering a lean spell, mirroring a similar slowdown in the U.S. auto sector, with sales falling for the second month in a row in May as higher taxes hurt.
Passenger-car sales in the world's biggest auto market dropped by 2.6% to 1.75 million last month, the government-backed China Association of Automobile Manufacturers said Monday.
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That performance followed a 3.7% decline in April, the sharpest since a mid-2015 slump, which prompted the government to slash its auto-sales tax to 5% from 10% to stoke demand.
"The market is gloomy," said Xu Haidong, the association's assistant secretary-general, blaming "overconsumption" last year for weak demand now.
Passenger-car sales surged 16% in 2016, thanks in part to the government's tax cut. But Beijing put the tax back up to 7.5% at the start of this year, sapping buyer interest in the early months of 2017.
Tighter liquidity controls are also making some Chinese banks reluctant to finance auto purchases, said Robin Zhu, an auto analyst with Sanford C. Bernstein, a research and brokerage firm.
Having forecast 4.6% growth for the China auto market in 2017 at the start of this year, Mr. Zhu said there is now a risk of growth failing to achieve that level.
However, surging demand for commercial vehicles is offsetting sluggish passenger car sales.
Sales of commercial vehicles in China increased 15% year-over-year in May to 345,000. The commercial vehicle market has grown 18% in the first five months of 2017.
While total vehicle sales declined marginally in May by 0.1% year-over-year, they increased 3.7% in the first five months overall.
China's auto market has entered a slow period that was inevitable after 2016's record-breaking sales, Mr. Xu said, likening the slowdown in China to that in the U.S., where passenger-car sales fell 0.9% in May and 4.7% in April.
But car dealers and auto makers are hoping for a year-end sales boost, as buyers scramble to make purchases before an expected tax increase to 10% takes effect.
Lilian Lin contributed to this article.
Write to Trefor Moss at Trefor.Moss@wsj.com
(END) Dow Jones Newswires
June 12, 2017 07:38 ET (11:38 GMT)