Stimulus policies to promote automotive sales next year

By Chen Xiaomin

Auto workers prepare a Chery car for painting at their factory in Wuhu, Anhui Province. China's auto production topped 10 million units for the year as of Tuesday, the first time it has broken the mark. Photo: IC

Favorable stimulus measures will continue to drive the auto market to high sales next year, analysts said Tuesday.

"The growth rate of value-added industrial output is still negative. The government won't sit by and do nothing," Lang Xuehong, deputy general manager of the automotive department with Sinotrust, a leading supplier of marketing and credit solutions in China, told the Global Times.

In the first eight months of the year, the growth rate of industrial output was 7.6 percentage points lower from a year earlier.

The automobile industry contributes much to industrial output. In Beijing, for example, the auto industry contributed 36 percent of the city's overall value-added industrial output in the first three quarters of 2009.

Boosted by a series of stimulus measures, China outstripped the US to become the world's largest car market in January, and the country's auto sales topped 1 million for seven straight months starting in March.

As producers rush to meet surging demand, the country's auto production topped 10 million units for the year as of yesterday. The China Association of Automobile Manufacturers said it is the first time the country has broken the mark, which has been passed only by the US and Japan previously.

Lang said auto sales this year will increase by 40 percent year-on-year to reach 14 million units and stimulus measures would continue to be in place next year.

Lang noted that a multi-layered purchase tax would most probably replace the present policy.

Purchase tax for 1.6 liters or less cars have been halved since the beginning of the year to encourage the purchase of environmentally-friendly vehicles. The policy has served as a major driving force in the promotion of domestic auto sales.

In the first nine months of the year, 69.89 percent of passenger vehicles sold in China were 1.6-liter or less. More than 5.06 million units of the fuel-efficient vehicles were sold during the same period, up 60.43 percent from a year earlier.

It appears that the tax breaks are having the desired effect. While sales of the environmentally-friendly cars have taken off since early this year, high emission vehicle sales continued dropping until there was a slight bounce back in August.

Analysts believe that the car bonanza will not stop anytime soon. Sinotrust's Lang predicted a 15 percent increase of auto sales in China next year.

Zeng Zhiling, senior auto market analyst with Shanghai-based Global Insight, struck a similar note.

"Purchase taxes for vehicles that produce low emissions will possibly be still lower than those that spew high emissions [next year]," Zeng told the Global Times.

The auto market has considerable growth potential, said Lang, adding China only has 50 vehicles per thousand people, compared with 800 in the US and 500 to 600 in Europe.

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