Expanding purchase tax cut to 2.0L means

【Comments】I am skeptical of this rumor. Recently on a press conference held by the State Information Office minister of Ministry of Industry and Information Technology of the People's Republic China Li Yizhong implicitly revealed if the half purchase tax concessions are canceled at the end of this year auto replacement program will continue to be implemented. Li Yizhong also said they still need time to discuss whether the policy will continue or not. At the same time he pointed purchase tax concessions have been imposing pressure on government’s finance. Relevant statistics show Chinese government’s fiscal revenue from January to May this year was 2.710867 trillion yuan, down 6.7% and 195.57 billion yuan less compared with the same period of 2008.

This year's budget deficit is as high as 960 billion yuan, a record high. Funds of 4 trillion yuan stimulus plans in early of this year are mostly from the state finance. Additionally, in the first half of 2009 banks have granted 7.37 trillion yuan loans, coupled with the continuously decline of industrial profits, a loss is still expanding. Therefore, if purchase tax concessions further expand state finance will endure increasing pressure.

If government just put forward free purchase tax of cars with a displacement of below 1.4 liters I think it deserves some consideration. First, purchase tax rate of such small displacement cars is not high previously and its impacts on the state finance are relatively small. However, free purchase tax of such small displacement cars can have a great psychological impact on prospective buyers because their salaries are relatively low and are extremely sensitive to car prices. What’s more, free purchase tax of car with a displacement of below 1.4 liters can represent the government's policy direction: a larger effort to encourage energy-saving and emission reduction.

In recent years China's car consumption trend is more and more alike to the United States rather than Europe, the car emissions keep increasing and there are more high-grade cars. Moreover, Chinese consumers are inclined to buy high-powered and high-speed cars, which is not consistent with the concept of conservation-oriented society. In terms of China's resource situation, the auto industry is also impossible to achieve sustainable development, so it is imperative for Chinese government to do right policy direction, even if in near term state finance undergoes a little loss, it is worthwhile in the long run.

As for the purchase tax concessions extended to cars with a displacement of 2.0 liters, I think that is unlikely. At present there are a lot of cars with a displacement of 2.0 liters in Chinese car market and the proportion of this kind of cars is very large. If the concessions extended to cars with a displacement of 2.0 liters, scale of preferential policies will be too large and can’t reflect the difference. No difference means the policies have lost the role to encourage low-emission vehicles. If cars with a displacement of 2.0 liters are considered as a low-emission, Chinese car market will really become a market like U.S.

【News excerpt】News reporters yesterday knew that relevant departments are discussing a new policy to stimulate the auto consumption which is expected to be announced as early as the end of this year and be used to replace purchase tax concessions of passenger cars expired at the end of this year. It is reported that new policy will lead a small displacement and low-power auto products consumption, consumers who will purchase energy-saving and new energy cars will enjoy purchase tax concessions. Scale of new purchase tax concessions policies are likely to extend and purchase tax of cars with a displacement of 1.4 liters maybe free, which is more preferential than current policies. (Translator: Qinghua Wade)

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