FAW Xiali gains from small-car tax cut news

TIANJIN FAW Xiali Automobile Co, the Chinese maker of US$5,000 compacts, rose the most in two weeks yesterday in Shenzhen trading after the government announced plans to cut the tax on small automobiles.

The car maker, also a partner of Toyota Motor Corp, rose 5.5 percent to close at 3.83 yuan yesterday in Shenzhen. Chongqing Changan Automobile Co rose 2.7 percent to close at 4.52 yuan in Shenzhen, its biggest gain in three weeks, Bloomberg News reported.

China's finance ministry said on Wednesday it will cut the sales tax on cars with engines of 1 liter or less to 1 percent from 3 percent. The tax on cars with 4-liter engines or more will also double to 40 percent from September 1 as the government battles to curb energy use and reduce pollution.

"The tax cut led to the rise for Xiali and Changan," said Li Dan, an analyst at China Galaxy Securities Co in Beijing. "But the incentive is too small to help make the rise sustainable given the sluggish market.''

Great Wall Motor Co, China's largest maker of sport-utility vehicles, fell 11 percent to HK$3.55 (46 US cents) in Hong Kong. The stock has declined for 12 days, its longest losing streak since December 2003.

Chery Automobile Co, China's largest maker of cars with engines of 1 liter or less, is closely held.

FAW Xiali's 1-liter Xiali cars cost from 36,800 yuan, according to Sina.com. The N3 version is the cheapest car listed on the Website.

Automobiles account for about half of China's total oil use, and this may rise to 60 percent by 2020.