Shanghai surprise: world car makers find some solace at last

China is now the world's number one car market

The biggest car market in the world, 13 brand new models unveiled and a still-untapped market of would-be car owners – not Detroit in the 1950s, but Shanghai today, a busy hub of activity in the middle of the global financial crisis.

There was a time when the Shanghai Motor Show was a footnote in the industry's long list of exhibitions, but no longer: China is the world's only growing major market for cars, reflecting an economy showing signs of recovery that are still a distant dream in other parts of the world.

Government incentives, including tax breaks for purchases of fuel-efficient cars and incentives for people in the countryside to buy new cars, are driving growth in the auto market. And while government data last week showed a marked slowdown in China's economy during the first quarter of 2009, at 6.1 per cent, growth is still there.

Feelings of bullishness in Shanghai may prove premature, economists warn, but having just overtaken the US as the world's largest car market, and with US and European car sales sharply down, the atmosphere at the show is certainly optimistic.

Car sales hit a record of 1.11 million vehicles last month, outstripping the US for the third month in a row and up 5 per cent from a year ago.

The derivatives trader's car producer of choice, Porsche, chose Shanghai to unveil the four-door Panamera, the German luxury carmaker's first foray into the sedan class and only the second time it has ventured away from its trademark sports cars.

While its UK sales slumped 36 per cent in the first quarter of this year, Porsche's order books in China are in good shape, and the company decided to launch the Panamera as a sign of just how important China has become to its business. A turbo version of the Panamera will sell for a cool £250,000 in China.

Daimler also came to Shanghai, to unwrap its remodelled Mercedes-Benz S65 AMG sedan – sales of the AMG nearly tripled in China last year – while General Motors, the biggest overseas automaker in China, said it was likely to build a new factory in China to cope with surging demand. GM raised sales in the country by 38 per cent last month as government stimulus measures spurred demand for its minivans.

There are more than 1,500 manufacturers attending the show, ranging from Bentley and Mercedes to the up-and-coming domestic carmakers such as Chery and Shanghai Auto.

The popularity of the show reflects evidence that China's economy has already put the worst of the global recession behind it. Addressing the Boao Economic Forum at the weekend, Premier Wen Jiabao said China's economy was performing beyond expectations and that the country's stimulus package was working. "China's package plan is already paying off and positive changes have taken place in the economy," he said. "The situation is better than expected." Mr Wen said there was evidence from industrial output, consumer spending and capital investment that the economy was bouncing back from the slump.

The Government is committed to getting growth back on track by further boosting domestic demand, building major infrastructure projects, finding jobs for college students and improving the social safety net.

China also has a solid banking industry with sufficient liquidity and a rich supply of labour. Domestic consumption is growing "fairly fast" – boosting domestic consumption is seen as important to help Chinese growth increase, while the banking sector is pumping almost two trillion yuan a month into the economy.

UBS head of China research Wang Tao upgraded her bank's 2009 GDP growth forecast to between 7 and 7.5 per cent on very strong stimulus-related bank lending growth.

"While the external outlook remains bleak, there have been signs of domestic activity picking up in China, as a result of the government's policy stimulus," she said.

The world is waiting to see if China rebounds, as it would help other countries by boosting demand for their exports, though China alone is unlikely to lift the world out of the worst slump since the 1930s.