Beijing:China's automotive sector is experiencing significant support from exports despite facing weak domestic demand, according to a recent report by Fitch Ratings.

According to Anadolu Agency – English, Fitch Ratings highlighted that while robust exports are buoying the car industry, regulatory changes and tightened profitability are expected to constrain growth prospects by 2027. The agency forecasts a 20% decline in local passenger-car retail volume in 2026, with a slight recovery anticipated the following year due to product enhancements and a surge in new-energy vehicle (NEV) purchases before the tax-rebate ends.

The report detailed a 24.5% year-on-year decrease in domestic passenger-car retail deliveries for the third quarter of 2026, alongside a 5.8% drop in wholesale deliveries. It also noted that artificial intelligence (AI) adoption and NEV market penetration have reached 65.8%, as demand for internal combustion engine models remains low.

Exports have been identified as the main growth driver for China's automotive industry, with passenger-car exports jumping 72% year-on-year to a record 2.7 million units in the third quarter. NEVs accounted for 59% of these overseas deliveries. Fitch expects overseas auto deliveries to maintain strength in the short term as manufacturers expedite shipments ahead of upcoming regulatory changes.

However, the agency predicts a significant slowdown in export growth next year due to potential European Union import quotas on Chinese-built hybrids starting in late 2026, and a reduction in China's NEV export VAT rebate from 13% to 9% beginning in April 2027. This negative impact is expected to be mitigated by rising demand from emerging economies and an increase in European manufacturing capacity.

Fitch also reported that the financial margins within China's auto industry are under pressure, with a 23% decline in operating profit from January to September. The industry's operating margin decreased to 3.3% over this period and further fell to 1.4% in September.