Chinese commercial vehicle market expected to continue softening through 2022

Trucks designed to haul freight on highways are becoming much more sophisticated in China. Thanks to standardization, trucks now have the ability to do drop and hook, according to Perkins. Trucks are also being upgraded to more modern emissions systems. 

“Right now, the heavy-duty truck portion of the market is continuing to go through what I would call an industry reshuffling,” Perkins said. “You can break heavy-duty trucks into two segments –  the freight-hauling trucks and the trucks that support infrastructure, primarily dump trucks. You can also split the market between straight trucks and tractor-trailers. The freight side has been [dominated by] straight trucks and is transitioning to tractor-trailers.”

Trucks designed to haul freight on highways are becoming much more sophisticated in China. Thanks to standardization, trucks now have the ability to do drop and hook, according to Perkins. Trucks are also being upgraded to more modern emissions systems. 

“They’re going from a four-year lifespan to a seven-year lifespan, so there’s a huge transition going on on the freight-hauling side of the business,” Perkins said. “It does mean that there are fewer and fewer trucks needed because they are lasting longer and are able to be used more efficiently.”

In late 2016, the Chinese government enacted new weight and length policies that require about 15 percent more trucks than previously. These new policies temporarily disrupted the existing downward trend. 

“It added this huge lump of trucks to the population. While the trend has been downward, you have this huge lump of trucks in 2017, and those trucks will then come through for replacement in the 2023-24 time frame,” Perkins said. “You’ll see the replacement cycle in 2023-24, but fundamentally, they need fewer and fewer trucks because the trucks are getting better.”

More changes are expected in the future, but the impact is not expected to be quite as significant.

“ACT Research anticipates that, in the next five years, policies regarding commercial vehicles in China will focus on environmental improvements and safety,” Perkins said in a media release. “While this will promote product updates and technology shifts, they should not cause the large market fluctuations experienced in 2016 and 2017.”

The domestic demand in China for heavy-duty trucks was down about 1 percent year-over-year in the fourth quarter of 2018, while the tractor market grew more than 12 percent according to Perkins. The medium-duty market took a bigger hit, closing out 2018 down 48 percent year-over-year.

While the advancement of technology is largely to blame for the downward trend, it is not the only factor at play. China is also building out its rail system, which is causing additional freight to be transported by train. 

“You’re seeing not just the freight trucks but also the dump trucks and the vocationals come down,” Perkins said. This is primarily around the energy sector, where they’re shifting from truck to rail.” 

The rail system has a significant focus on coal, which impacts dump trucks particularly hard.

While China has never been a huge truck exporter, Perkins expects that to change somewhat due to the state of the market. 

“I think there is going to be a renewed effort to sell more trucks in the international market because they obviously have the capacity and, as the domestic market comes down, they’re going to look to unload trucks,” Perkins said. “Plus, they do not have a mature used truck market. In the past, they would take the used trucks and they would end up on farms in Tibet and in western China. That’s no longer available to them because of regulations, so they will try to export used vehicles as well.”

Differences in quality systems and international standard make it unlikely that China will have much luck exporting to Europe, the U.S. or most parts of South America.

“They will continue to try, but as one senior executive in the U.S. trucking industry said, ‘By the time you add all of the safety equipment to a Chinese truck that an American truck has, it costs the same as an American truck,’” Perkins recounted.

While about 1.4 million trucks were previously sold annually in China, Perkins said the combination of factors at play will bring that number down to a more normalized 800,000 each year until the replacement cycle rolls around.

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