China's new 'cash for clunkers' to boost auto sales

The Chinese government has increased subsidies for car owners who replace old vehicles. The move is part of an extended stimulus package aimed at maintaining rapid growth in China's exploding auto market.

The Ministry of Commerce said in a statement that qualified car owners who trade outdated or highly polluting vehicles will receive a subsidy that is the equivalent of $733-$2,635, an increase from the maximum in 2009 of $890.

Vehicles that are eligible for subsidies include medium-size buses and trucks in addition to cars.

The standard for a highly polluting vehicle is a gasoline-powered vehicle that fails to meet China's first-generation emissions standards or a diesel vehicle that doesn't meet third-generation emissions standards.

The stimulus package was originally launched last February to help increase demand after a poorer showing in 2008. Among the features of the package are a 50 percent reduction in taxes on small cars and $146.4 million in subsidies to consumers who upgrade their vehicles. The subsidy was raised to $732.3 million in May and was expanded to cover more vehicles.

For 2010, China is raising the tax on sub-1.6-liter cars from 5 to 7.5 percent.

China aims to sell 15 million vehicles this year after explosive growth in 2009. Vehicle sales in China accelerated 42 percent to 12.23 million units for the first 11 months of last year, with small cars being the major driving force.

The robust sales enabled China to be one of the world's fastest-recovering auto markets and helped it retain its lead against the United States as the biggest auto market.

Inside Line says: More of the government's mostly successful tweaking of China's growing automotive market.