Analysis of the purchase tax concessions

From January to August in 2009, sales of Chinese car market have been in rapid growth. Previously, car sales in July and August were not as many as this year, not to mention the sales of August were even better than July. Moreover, sales of increasing prices and waiting for purchasing the cars have become a scene of the auto market, which also shows the characteristics of a wide range and long duration. The public held the opinion that in the third quarter shortage of supply would ease thanks to increased production of the target supply. However, so far the situation hasn’t improved yet and phenomenon of booking and queues remain. Several factors contribute to the great demands of Chinese consumers and car sales growth. Above all, Chinese government’s policies to stimulate auto consumption are decisive. Effects of half purchase tax concession of cars whose displacement is 1.6 or below 1.6 liters are more extensive and stronger and the trend or changes of this policy are receiving considerable attention from various sides.

From January to July, in terms of sales of Chinese car market, 60% of the overall sales have been promoted by the half purchase tax concession of cars whose displacement is 1.6 or below 1.6 liters. At present, effects of the policy are still in a smooth continuation, to a certain extent, it plays an important role in sales of Chinese car market reaching more than one million units each month. Recently Chinese and foreign media have been predict the future of purchase tax concessions policy, and mainly concentrate on expiration of the policy at the end of 2009. From my own perspective, continuation of the policy and expand its scale in 2010 are the two most important or sensitive issues. Prospect of the policy can affect the trend of Chinese car market.

　　Issues involving expiration of the purchase tax concessions

According to the report of media on August 14 2009 the State Council Information Office held a press conference and relevant departments clarified deadline of the policy would be December 31. On the press conference relevant departments didn’t reveal whether the policy would continue or not. In other words, if there are no new adjustment plans the policy will terminate at the end of 2009.

Here I want to make a simple analysis, some policies always terminate after all and so expiration of the policy at the end of 2009 is reasonable. First, majority of Chinese consumers have enjoyed benefits of purchase tax concessions in 2009.However, the situation will be not that simple if we consider from the actual condition of Chinese consumers. For instance, this just like the salary increase in corporations once increase the decline is not easy as before. In 2009 Chinese consumers have enjoyed the policy, if it will terminate at the end of 2009 prospective buyers in 2010 will suffer from psychological imbalance and maybe will change their purchase cars decisions.

Second, various sides are predicting the economic situation and car market situation in 2010, and although there are a variety of forecasts, generally most of them agree that the situation will not be optimistic. Despite the current auto market is in an explosive growth a variety of factors at home and abroad in 2010 is difficult to predict. Therefore, if the policy will terminate it has a great impact on auto consumption considering the structure of auto consumption in 2009.

　　Issues of continuation of the policy

Despite the current car to the countryside as well as auto replacement policies are being implemented can also contribute a lot to complete the annual 12 million sale targets, with the development of market other policies to stimulate demands for cars also can be made. Nevertheless, other favorable policies can’t be better than purchase tax concessions. Great effects of purchase tax concessions have been fully proved by the excellent sales performance from January to August.

If government decides to cancel the policy, there will be a high purchase climax of cars whose displacement is or below 1.6 liters at the end of 2009, which is supposed to affect car consumption of Chinese consumers in 2010. Further it can affect the smooth implementation of car to the countryside(sales in the countryside are mainly cars whose displacement is or below 1.6 liters) .At the same time, we have to choose one between purchase tax concessions or auto replacement and the effects of latter policy are much inferior to the former.

As a result, the cancel of purchase tax concessions will impact the overall sales and structural adjustment of Chinese car market in 2010. What’s more, it can also harm the sales of Chinese own auto brands. Therefore, considering the environment at home and abroad, the practical conditions of market economy, the practical development situation of auto market in 2009, the consolidation, sustainable development and the actual situation of the purchasing power of most Chinese consumers, continuation is better than the expiration. I propose relevant government departments will continue to implement half purchase tax concession of cars whose displacement are 1.6 or below 1.6 liters so as to ensure stable development of Chinese car market.

　　About adjustment time of the policy be announced

Since the policy is very powerful and significant, even if the two issues mentioned above have a clear answer, when future of the policy will be announced is extremely sensitive. Actually the time of announcement both need important strategy and a certain degree of wisdom.

Chinese car market is basically a policy-oriented market, which means policies can play a decisive role in deciding the performance of the market. 2009 is a good proof. The time is very sensitive, if Chinese government declares the policy will not continue to be implemented at the end of 2009 there will be a purchase climax that time. As a result, demands of 2010 will be released early and impacts the sales in 2010. If someday government announces purchase tax concessions will continue a considerable number of consumers will adjust their currents plan and it is possible that they will wait for more preferential policies and buy cars in the first half of 2010.

Considering that the fourth quarter is a traditional sales season of Chinese car market especially National Day and the end of the year there will form two sales peaks. Performance of sales in the fourth quarter is crucial to sales goal of entire year and the early sales in 2010. Therefore the policy will have a great impact once announced. With the end of this year approaching, whether preferential policies to encourage auto consumption will continue or not has become the focus of the future of China’s auto industry.

As the next year is faced with many issues such as overcapacity, structural adjustment and industrial restructuring, with international auto giants are launching more economy vehicles with low emissions, Chinese and international auto market competition will become more intense. The future market growth needs guidance and promotion of policies. Chinese car market has achieved great success and has formed an important foundation, so China’s auto industry should have confidence to meet the new market competition. (Translator: Qinghua Wade)

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