For keeping the auto market at a high pace, the Chinese government wants to introduce new subsidies for vehicle purchases, according to sources, but for rural areas this time.
Chinese authorities decided two months ago to lower the purchase tax for new cars from 10 to 5 percent for the vehicles using engines 1.6 liters or smaller from October through the end of 2016. The central government also forced local authorities to allow unrestricted purchase and operation of electric vehicles and restated support for new-energy vehicles. The government is intensifying its supportive measures for the auto industry by planning to introduce some new subsidies for those intending to buy a new car with engines up to 1.6-litres. But this time, the incentives are aimed for auto purchases by rural residents, covering also mini-commercial vehicles and light pickup trucks, according to people familiar with the matter. This program is not a new one for the Chinese authorities, as similar help for rural areas was offered until 2010, but differs from the previous round because it covers passenger vehicles, the people said.
“The auto sector has a very long industry supply chain and can directly stimulate economic growth,” said Xu Gang, a managing director at Boston Consulting Group in Shanghai. “There’s not much room to stimulate sales in big cities as vehicle ownership is approaching saturation levels.” The tax reduction introduced two months ago boosted the sales and deliveries in China have recorded the fastest pace in seven months in October, according to the China Passenger Car Association. Thereby, sales increased by 11.3 percent to 1.85 million cars last month, the best statistics since March. “There has been a shift away from minibuses to domestic SUVs and MPVs which a new subsidy would likely underpin,” said Janet Lewis, a Hong Kong-based analyst at Macquarie Group Ltd. “It would likely benefit domestic automakers more than international brands.”