China encourages scrapping old cars for new ones

BEIJING (AFP) — China plans to offer incentives for car owners to scrap their old models in favour of new ones, in a bid to lift the auto industry as it enters a period of crisis, according to state media.

The measure is part of a new package being prepared in Beijing aimed at avoiding a US-style collapse of the local auto sector, the Xinhua news agency reported.

"Details of the plan will be announced very soon," said an unnamed official with the commerce ministry. He did not give any details.

The official was speaking shortly after dismal figures were released showing that Chinese auto sales fell 14.6 percent in November from a year earlier.

Other measures that China may adopt to bolster auto sales include cuts in the 10-percent vehicle purchase tax and easier access to car loans, according to Xinhua.

The health of the auto industry is crucial for the overall well-being of the Chinese economy as economists have argued more than 150 industries depend on it, including the steel and petrochemical sectors.

"The auto industry's current difficulties are what concern me the most," Premier Wen Jiabao was quoted as saying in a recent trip to the southwestern city of Chongqing, a car manufacturing key area of China.

China's economy is under growing pressure due to the global crisis, with overall growth in the third quarter at nine percent, the lowest in over five years.

The World Bank has forecast that growth in the Chinese economy will slow to 7.5 percent in 2009, a level not seen for 19 years.