China Swamped by Glut of Unsold Goods
By wchung | 25 Apr, 2025

China’s efforts at keeping up production growth in a time of stagnant global demand is creating the fastest inventory growth since recordkeeping began in 2004, according to the New York Times.

The glut of everything from cars to apartments to appliances is burdening distributors and retailers and dampening China’s efforts to keep GDP growth above 8%. The government has been suppressing release of data on the glut but the growing stockpiles of unsold goods is a source of distress to everyone involved in China’s merchandise distribution pipeline, according to the Times.

The problem is partly ascribed to the decision by China’s central and local governments to limit congestion in big cities by sharply cutting auto registrations and the campaign to drive down housing prices by imposing punitive taxes on speculative purchases of residential properties.

The result has been overflowing car lots and rows of empty apartments on the outskirts of major cities.

Despite the growing stockpiles of unsold inventory, manufacturers are building new plants to meet production growth goals set during the go-go days of 2010 and 2011 when the auto industry was logging 45% annual growth. Though China’s auto plants are currently operating at only 65% capacity, in the next three years the nation’s carmakers will open as many new car plants as are currently operating in all of Japan or nearly as many as are in the US.

The disconnect between production and sales is illustrated by two pieces of data. The first is the automakers’ report of the number of cars sold to dealers. That rose 9%, or nearly 600,000 units, in the first half of this year compared to the same period last year. At the same time, dealerships reported a jump in new car inventories of 900,000 units from the end of December to the end of June. From these facts analysts are concluding that sales are flat at best, even allowing for seasonal fluctuations.

Pressure from manufacturers to accept delivery of cars under franchise agreements has prompted the government-controlled China Automobile Dealers Association to issue a rare appeal to automakers earlier this month to plead for slower delivery so they can “digest inventory” and for financial support to “help dealers ride out the storm.”

The central government has been withholding data that would reveal the growing inventory glut, according to the Times. It cites the fact that the Public Security Bureau has stopped releasing data about the steep drop in car registrations and the repeated revision of steel sector data due to a new methodology showing a steeper drop in demand than previously logged. The government has also not released data on the number of empty apartments since 2008.

But the inventory glut may not be an augur of a sustained economic slump. After national stability was threatened by 9% food inflation in 2010 and housing that only wealthy speculators could afford to buy, the central government pulled every economic lever available to bring down inflation and housing prices. The measures it took to achieve the goal had the effect of dampening consumption. But now that inflation is at around 2% and housing prices have been falling steadily, the government has announced a series of measures designed to loosen the money supply and stimulate consumption. Once those new policies kick in during the next half year, the inventory glut may well disappear as quickly as it appeared.