CARMAKERS in China will face more fierce competition this year, after a tough 2018 when the world’s biggest auto market contracted for the first time in more than two decades, the country’s top auto industry association said yesterday.

Companies such as homegrown Geely and Britain’s biggest automaker Jaguar Land Rover have already in recent days flagged caution about China sales in 2019, hit also by the Sino-U.S. trade war.

China’s car sales fell 13 percent in December, the sixth straight month of declines, bringing annual sales to 28.1 million, down 2.8 percent from a year earlier, China’s Association of Automobile Manufacturers (CAAM) said.

This was against a 3-percent annual growth forecast set at the start of 2018 and is the first time China’s auto market has contracted since the 1990s.

China’s car market “still faces relatively large pressures in the short-term,” senior CAAM official Shi Jianhua said at a briefing, attributing the weak 2018 sales to the phasing out of purchase tax cuts on smaller cars and the trade war.

The CAAM expects the weakness to persist and has forecast flat sales of 28.1 million vehicles for 2019, while other government and industry bodies see a 0 to 2-percent growth.

Ford was the worst performer among global car makers in China last year, with its sales shrinking 37 percent.

Geely, China’s most successful carmaker, sold 20 percent more cars in 2018, but this was sharply lower than a 63-percent growth in 2017. It is forecasting flat sales this year.

Japan’s Toyota Motor, however, bucked the trend, with a 14.3-percent rise in sales in China, versus 6-percent growth in 2017, helped by better demand for its luxury brand Lexus and improved marketing efforts.

Analysts are counting on measures promised by the government to buoy spending as well as rising demand for new energy vehicles (NEVs) to bring some relief.

NEV sales jumped 61.7 percent in 2018 to 1.3 million units, the CAAM said. It sees NEV sales hitting 1.6 million this year.

The country’s top economic planner has said it will introduce policies to lift domestic spending on items such as autos, without providing specifics. China has also made changes to the income tax threshold to hike incomes and personal spending power.

This could help resolve the industry’s current issues of unsold inventory, drive sales growth and provide relief to the economic pressures China is facing, said Patrick Yuan, Hong Kong-based analyst at Jefferies.

“With that, car sales growth could recover to as high as 7 percent” this year, he said.

According to Alan Kang, an LMC Automotive analyst, demand could also draw support as consumers stop putting their buying decisions on hold in hopes the government will reintroduce purchase tax cuts on smaller cars.

As their hopes for tax cuts “evaporate in 2019,” these consumers will trickle back in, he added.

However, some analysts struck a sombre note amid forecasts China’s economy would slow further this year. Data this month may show the economy grew around 6.6 percent in 2018 — the weakest since 1990.

“We should notice the big uncertainties among macro economy and trade tensions, which hit the auto market in China last year and may happen again this year,” said Yale Zhang, head of consultancy AutoForesight.(SD-Agencies)