China's light vehicle market should have experienced a strong start to the year, given the longer than usual busy selling season that preceded Spring Festival, which fell in the middle of February, later than normal, this year.

However, sales results of locally produced light vehicles for January 2015 amounted to 2.26 million units, a meager 9 percent increase from the same period last year.

The light commercial vehicle sector followed the same pattern seen in preceding months, with a decrease in January of 12 percent in year-on-year terms to 320,000 units.

The minibus segment, which continues to be squeezed by the rapidly emerging MPV segment within the PV sector, led the downward trend with sales in the month falling by 24 percent year-on-year to 100,000 units.

In the same month, sales of light trucks and pickups totaled 130,000, a drop of 12 percent from the same period of last year. This was prompted by higher vehicle costs triggered by stricter regulations imposed by China IV emissions standards.

At first glance, the passenger vehicle sector appeared to be more dynamic, with January sales of locally produced models climbing by 13 percent on last year to 1.94 million units. However, we believe this growth is far less substantial than it may first appear once positive market influences are taken into account. These were notably the impact of a late Spring Festival and the upward shift in demand from the minibus to the MPV segment.

The seasonally adjusted annual rate, or SAAR, of passenger vehicle sales in January was 21.1 million units, nearly a million units fewer than in December 2014. Normal market conditions would usually produce a higher SAAR in January than in the preceding December.

In our assessment, the overriding factor behind the January anomaly was the destocking at dealer level. According to the China Automobile Dealers Association, the dealer-level inventory index stood at 1.2 months at the end of January, 0.23 months higher than in January 2014. At the end of December 2014, this index reached 1.53 months, 0.53 months higher in year-on-year terms. This suggests that the dealer-level inventory was reduced by about 200,000 m units in January 2015.

Digging a little deeper, it became apparent that Japanese original equipment manufacturers, or OEMs, were at the forefront of the ongoing destocking process to compensate for the spike in wholesales last December.

The net result was a drop in the Japanese brands' share of the overall passenger vehicle market to 12 percent in January, versus 19 percent in December of last year and 17 percent in the final quarter of 2014. As well as the Japanese OEMs, Hyundai-Kia and General Motors demonstrated similar falls in market shares, albeit to a lesser extent.

Other OEMs followed a reverse pattern, helping, in part, to offset the inventory hikes seen last December, while smoothing out the sales trends of the past few months. European OEMs - the frontrunners in the Chinese market in recent years - saw their share of the passenger vehicle sector rebound to 26 percent in January from 18 percent in December 2014 and 21 percent in the fourth quarter of last year.

Destocking has by no means been limited to dealers. OEMs followed suit, with a resulting negative impact on production growth. In 2014 passenger vehicle production exceeded wholesales by 270,000 units, or 1.4 percent of total yearly production, a peak not seen since 2007. The knock-on effect of this saw passenger vehicle wholesales in January overtake production by nearly 70,000 units and marked the second consecutive month of OEM-level destocking.

Our projection going forward is that destocking at both OEM and dealer level will continue throughout the coming months. It has been our view since last year that inventory will be a key factor in adversely affecting market growth in 2015 and the evidence points towards it having already undermined the positive impact that would ordinarily have resulted from the late Spring Festival.

(Note: Since January 2015, LMC Automotive has followed the China Association of Automobile Manufacturers to classify the Wuling Hongguang and Changan Honor in to the MPV [PV] segment, while the minibus segment is still defined as LCV.)

The author is the China forecasting manager of LMC Automotive.