Carmakers' shares dip in HK on sales tax hike news

Shanghai, December 10 (Gasgoo.com) Shares of Dongfeng and Geely and other Hong Kong-listed Chinese automakers fell sharply today after China announced its decision to scale up the sales tax on small cars next year, Reuters reported.

The Chinese government will raise the sales tax on small cars to 7.5% next year from the current 5.0% which has been in place since January when the 10% sales tax was halved to boost the auto market demand. The tax cuts apply to cars with engine sizes of 1.6 liter or less.

Industry officials have said that the 7% is still lower than the original 10% sales tax. However, the tax mark-up, which was announced yesterday, has dashed hopes that the sales tax would be lower and the incentive would be extended to benefit cars with larger engines.

Dongfeng Motor Group Co (0489.HK), the Chinese partner of Japan's Honda Motor and Nissan Motor, was down 5.15% at HK$11.04 by midday. Shares in Denway Motors (0203.HK), a Honda partner, fell 4.37%. Its prime model Accord has an engine size of 2 liter and above.

Geely Auto (0175.HK), whose parent Zhejiang Geely Holding Group was named by Ford Motor as the preferred bidder for Volvo, plunged 4.77% to HK$4.37. BYD (1211.HK), which is 10% owned by U.S. billionaire Warren Buffett's Berkshire Hathaway, eased 2.08%.

However, mainland listed auto makers seem to be little affected. The lowered benefit is a slight negative but unlikely to derail passenger car demand momentum in China, said an analyst.