China: government lowers acquisition tax to help sagging sales image

Chinese automakers saw their shares on the rise recently following the decision by the central government to reduce the tax on passenger car sales and announced further support measures for electric autos as the auto market has started delivering negative results.

Local carmakers such as Geely, Great Wall, Dongfeng or BYD all soared as support measures have been introduced after the authorities were lobbied by China’s state-backed auto association to deliver incentives to prop the industry as vehicle deliveries crumbled for five consecutive months on the stock market rout and a slower rising economy. The intervention, a “too big to fail” scenario shows how much the overall economy has come to depend on the automotive industry – which makes up at least 10 percent of China’s gross domestic product, tax income and employment, says Sanford C. Bernstein & Co. The move also emphasizes “Beijing’s resolve when it comes to maintaining growth in the auto industry,” commented Bernstein analysts led by Robin Zhu in a report.

China’s government opted to halve the purchase tax on autos with 1.6 liters or smaller to five percent starting October 1 and the derogation is available through the end of 2016, according to the State Council, or cabinet. The local governments are also disallowed to impose any restrictions on the acquisition and operation of electric vehicles and the state showcased its continued support towards the introduction of more new-energy vehicles as well as the promotion of electric car battery development.

Via Bloomberg