A number of major players in the Chinese auto industry have reported that recent tax changes have provided a major boost to sales, Time.com reported yesterday (1st March).

The government announced on 20th January that it was cutting sales tax on vehicles with engines of up to 1.6 litres from ten per cent to five per cent amid ever-decreasing demand.

Furthermore, road tax and fuel prices have been lowered and the result was a 19 per cent monthly increase in sales of small cars in January, according to figures from the China Association of Automobile Manufacturers.

Yao Jie, Deputy Secretary General of the body, explained that the move particularly benefited Chinese automakers, who saw their share of the market rise from 26 per cent to 30 per cent.

He told the news provider: "Domestic manufacturers mostly focus on the production of automobiles with smaller engine power, and they benefit the most from the tax reduction policy."

Indeed, those sentiments are reflected by companies such as Chery Automobile Co - the country's highest-selling automaker - which revealed recently that it expects sales to increase by 18 per cent this year.

In addition, the situation is likely to be remedied further this month when the government launches a $730 million subsidy scheme designed to encourage people in rural areas to purchase cars.

But perhaps most significantly, the official figures show that for the first time ever, more units were sold in China (735,000) in January than in the US (657,000), despite government support for General Motors and Chrysler.

Nevertheless, the Chinese auto industry is still facing major challenges, with overall sales down by 14 per cent and the prospect of an annual decline for the first time in 20 years.

As Michael Dunne, an analyst at research firm JD Power, explained to Time.com: "So far China has gotten away with that growth [but the slowdown puts] unprecedented pressure on weaker makers. Everybody looked good when you were growing at 20 per cent."

Source:

China's Auto Bailout Takes a Different Route (01/03/09)

http://www.time.com/time/world/article/0,8599,1882172,00.html?iid=tsmodule