Forecasting the car penetration rate (CPR) in China: a nonparametric approach

With strong economic growth, the auto industry has made great breakthroughs in recent years and has become a backbone industry in China, while cars play an increasingly important role, and are now the principal part of the auto industry. Both China's government and academic circles take strong interest in the prediction of CPR (i.e. car penetration rate or cars per thousand people), which will be the main guidance for the future industry policy. We summarize the existing problems in recent research and propose to use nonparametric methods to estimate the CPR and its elasticity with respect to GDP per capita (GDPPC). The results indicate that the nonparametric methods provide a much better fit than the conventional OLS method, and more importantly, it captures the nonlinearity of the elasticity of CPR with respect to GDPPC. Finally, we predict future CPR in China.