China to revive cash-for-clunkers program image

The Chinese government agreed to revive financial incentives for consumers to trade in their passenger cars to help increase demand as the Asian giant struggles to reverse a fall in economic growth.

Dubbed a “mini-me” version of the stimulus package unveiled in 2008 to combat the initial hit from the global financial crisis, the program announced today includes accelerating infrastructure projects, fresh subsidies for cars and electrical goods as well as loosening monetary policy.

The monetary policy move is expected to include an interest rate cut and further reductions to the bank reserve ratio as a means of freeing up cash for loans.

China in 2009 rolled out a cash-for- clunkers program to counter the global financial crisis, spurring 49.6 billion yuan ($7.8 billion) in new car purchases the following year.

“These policy stimuli can hold the slide in growth and investment demand, but probably not enough to stage a 2009-style rebound,” Tao Dong, a Hong Kong-based analyst with Credit Suisse said.

“The central government is likely to play a bigger role in funding, in contrast to last time in 2009 where the local governments relied on bank lending for funding almost entirely.”

Demand in the first four months of the year was the slowest since 1998, weighing on automakers from GM to VW which are counting on the world’s largest auto market to offset a sales slump in Europe.

Competition will get fiercer,”said Huang Wenlong, a Hong Kong analyst with BOC International Holdings Ltd.

Car sales in China are expected to grow 5-10 per cent on an annual basis in 2012, compared to 2011 when they grew at 5.2 per cent and 2010 when sales grow an impressive 33.2 per cent.