China unveils support plan for auto industry

Shanghai, January 14 (Gasgoo.com) China unveiled a wide-ranging support package today for the auto and steel industries to revive the two "pillar industries" amid the lingering global financial crisis, state media reported. The plan includes a new set of tax cuts and subsidies aimed at boosting demand for cars.

The Chinese government will cut the purchase tax on cars with engine sizes below 1.6 liters from 10% to 5% as part of the efforts to stimulate auto sales in China, the world's second largest auto market. That rate cut by half will take effect on Jan. 20 and run until the end of 2009.

The government will also give one-off cash subsidies totaling 5 billion yuan ($732 million) to farmers for them to replace their high-emission vehicles with more fuel-efficient and cleaner ones, it said.

The measures, endorsed by the State Council, China's Cabinet, at a meeting Wednesday, are intended to encourage purchases of cars and other vehicles, especially in the vast countryside and small cities and to help automakers makers upgrade to more modern, energy-efficient technology.

"To speed up the consolidation and revival of the auto industry, China must implement an active policy to boost consumption," the State Council said in a statement published on the central government's website (www.gov.cn).

China's auto sales grew 6.7 percent last year, the first time growth has fallen below 10 percent since 1999. Leaders are banking on demand in the countryside, which has lagged behind the consumer boom of the cities, to help tide the country through the lean months ahead, given the plunge in overseas demand for China's exports.

China's economic and industry planners have long sought to consolidate and upgrade the auto and steel industries, which are highly fragmented with many smaller, regional companies using outdated, uncompetitive technologies.

In the next three years the government will provide 10 billion yuan to automakers to help upgrade their technology and develop alternative energy vehicles, it said.

The new measures appear to be part of a wider 4 trillion yuan ($586 billion) stimulus package announced in November.