Auto Stimulus policies continue to affect

Citing an undisclosed source from a Chinese newspaper Chinese Business New, in 2009, the trend and growth rate of domestic auto market increases have gone beyond almost everybody’s expectation because of the three national three stimulus policies halving the purchase tax of car models with a displacement of 1.6-liter or less, introducing the vehicles to the countryside and cars trade-in. At present, the new adjustments of these three policies in 2010 have already been released. What impacts will these changes bring about?

　　Preferential margin of purchase tax shrinks

　　Policy: halve the purchase taxes of car models with a displacement of 1.6-liter or less

　　Implementation time: January 20, 2009 to December 31, 2009

Impact: the auto sales trend in 2009 has surprised almost everybody. The main contributor is this policy. According to statistics from China Automotive Industry Association, influenced by this policy, the sales performance of vehicles with a displacement of 1.6-liter or less have been outstanding this year, whose cumulative sales from January to November account for 85% of the growth rise of the whole auto market. Steam Association data show that affected by the policy, according to calculation, sales volume of about 2.6 million units have been driven by this policy. On the other hand, the reduction of purchase tax does not bring about tax reduction. Data released by the State Administration of Taxation show that the first 10 months of this year, auto consumption tax revenues grew by 12% while vehicle purchase tax revenue rose by 6.3% comparing to the same period of last year.

New adjustment: the preferential policy on auto models with a small displacement 1.6-liter or less will be extended till the end of 2010 with a new tax rate of 7.5%.

Forecasted impact: A senior auto commentator, Jia Xinguang thinks shrinkage of preferential margins is inevitable, ‘generally the government will not support a particular industry by reducing the taxes. As the economic situation improves, the concessions of purchase tax will be gradually reduced or phased out.’ The direct impact of this adjustment is to drive some prospective owner who is still waiting and observing immediately make their decision which may create difficulties to the buying behavior since the auto source is very limited at the end of year. As a result, price makeup may appear more frequently. On the other hand, the new policy narrows down the gap between the 1.6-liter models and 1.8-liter models, which can benefit the restorative growth of auto models with a displacement of 1.8-liter or higher.

　　The policy of introducing the vehicles to the countryside will be continuously implemented

　　Policy: the government will allocate 5 billion Yuan as one-off financial subsidies to farmers dismantling their three-wheeled motor vehicles, trading up light trucks and purchasing minibuses with a displacement of 1.3-liter or lower.

　　Implementation time: March 1, 2009 to December 31, 2009

Impact: In accordance with the policy, vehicles whose prices is less than 50 thousand can get a subsidy of 10% while vehicles cost more than 50 thousand can obtain a one-off subsidy of 5 thousand Yuan. According to statistics, after the implementation of this policy, the sales of minibuses in the first ten months have exceeded the number of 1.77 million units, with a growth of 77.6% compared to that of the same period of last year. It is noteworthy that the sales of 2008 only improved 2% compared with the year of 2007.

New adjustment: the policy of introducing the vehicles to the countryside will continuously be implemented till the end of next year. The rules on motorcycle, which also has been incorporated into this policy will be extended further to January 31, 2013.

Forecasted impact: the continuity of this policy will definitely arouse the buying desire of the farmers greatly. Ou Yongfu, vice president of Zhengzhou Sales Company which is mainly responsible for the sales of minibus and minicar of the hippocampus told the reporters, ‘This policy has driven a number of rural people who get rich earlier to purchase vehicles. Their actions will no doubt set a pole to people around. Like bicycles and color TVs, micro cars will be certainly gradually increasing in the rural areas, although are impossible to achieve their scale at present.

　　Expand the investments on cars trade-in

   Policy: dismantling old cars to trade-in new ones can get a subsidy of 3,000 to 6,000 accordingly. The models include mini trucks, old medium-sized taxis used less than 8 years together with vehicles with a history of less than 12 years, containing medium-sized and light trucks, old medium-sized buses other than taxis as well as ‘Yellow marked car’ scrapped in advance.

　　Implementation time: June 1, 2009 to May 31, 2010

Impact: Different from the former two policies, the influence of this policy has been sight in 2009 mainly due to the low subsidies. ‘My Alto can sell at least 10 thousand. Trade-in is actually not a good deal.’ The calculations of Auto owners give out a reasonable explanation to the small influence of this policy.

New adjustment: Trade-in one old car can get a subsidy of 5,000 to 18,000 Yuan.

Forecasted impact: The increased subsidies make the vehicle owners to see trade-in a ‘profitable’ deal. Then it is can be foreseen that the policy will start to play a larger role. What is even more critical is that this policy will speed up to eliminate the write-off cars and yellow label cars as well as promote the development of the second-hand auto markets and new auto markets. Meanwhile, it can also make a contribution to our national planning for energy-saving and emission reduction.(Translator: Yalong /Jessie)

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