Reprieve for Car Sales, and New U.S.-China Flights

China’s car sales returned to growth in September and Delta will resume its L.A.-to-Shanghai flights after more than a three-year suspension.

By Doug Young & Rene Vanguestaine

The latest monthly sales figures provide a glimmer of hope for China’s struggling auto market, with car sales rising by 4.3% in September. While this growth may seem modest, it marks a reversal of the year-on-year declines seen over the previous six months. A key driver behind this uptick has been the continued surge in new energy vehicles (NEVs), which saw a 50.9% jump and accounted for 52.8% of all vehicle sales for the month.

The recent increase in sales can be partly attributed to a new subsidy program introduced in July, offering the equivalent of $2,800 to consumers who trade in their old gas-powered cars for NEVs. By late September, 1.1 million consumers had registered for the program. Despite this recent success, sustainability remains a key concern. Similar programs in Europe have also been highly successful initially, with many people trading in their old cars early on. However, once the initial wave of consumers take action, interest in the programs typically wanes.

China’s NEV sales have largely been concentrated in larger cities, where charging infrastructure is well-established, making it convenient for daily use. However, broader adoption of NEVs will depend on expanding charging infrastructure to smaller, geographically dispersed areas and rural regions. The country’s strong subsidies and price competition have certainly played a role in boosting NEV adoption, but expanding the market beyond first-tier cities will be crucial for sustained growth.

Flying to Beijing or Shanghai?

Delta Air Lines is set to resume its Los Angeles-to-Shanghai service next summer, following a suspension of flights at the start of the pandemic. The resumed service will complement Delta’s existing routes between Shanghai and both Seattle and Detroit. This comes amid ongoing geopolitical tensions and pandemic-related restrictions that have kept flight frequencies between China and Western countries well below pre-Covid levels.

Interestingly, most airlines seem to favor Shanghai over Beijing when reinstating their China routes. Delta’s focus on Shanghai, with no resumed flights to Beijing, highlights a broader trend among international airlines. Several factors are contributing to this preference, including the stronger business environment in Shanghai, which attracts more international business travelers.

Another critical factor is the geographical advantage for airlines flying from the U.S. West Coast. Routes from cities like Los Angeles and Seattle to Shanghai can avoid Russian airspace, unlike flights to Beijing, which would often require flying over Russia—a route currently off-limits for U.S. airlines, particularly for routes like New York to Beijing. This limitation has made it difficult for U.S. carriers to compete with Chinese airlines, which are allowed to fly over Russian airspace, giving them a significant advantage.

The impact of this airspace restriction has also affected European carriers, resulting in a significant decline in the number of flights they operate to China. European airlines are now operating only a quarter of the flights on China-Europe routes, down from about half previously. As Chinese airlines continue to dominate these routes by flying to Europe via Russian airspace—an option unavailable to European carriers—pressure is mounting for Western governments to take action to support their domestic airlines and address this imbalance.

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China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

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