China to increase small vehicle tax and hybrid incentives

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Beijing main road

Despite a low percentage of vehicle ownership, China has the largest car market in the world. Image from Flickr.

In January of 2009, the Chinese government halved its tax on cars with small engines (1.6 liters or less). The Chinese State Information Center is announcing that the small vehicle tax, currently at 7.5 percent, will most likely be returned to 10 percent. Will the move hurt new auto sales in China?

Momentum in the Chinese vehicle market

Originally, the small car tax in China was reduced to spur vehicle sales in the country. In 2009, 13.6 million autos were sold in China. In the first two quarters of this year, growth in the Chinese auto market reached 11.9 percent. The Chinese government will be increasing taxes to help cool down the market on concerns of overheating. At the same time, the government is hoping to encourage more vehicle ownership and auto financing.

Vehicle ownership in China

In China, car ownership levels are at about 48 vehicles per 1,000 people. In comparison, the United States has a vehicle ownership rate of about 400 per 1,000 people. In China, about 90 percent of vehicles are purchased with no financing, as opposed to about 15 percent in the United States. Even with the low rate of vehicle ownership, China’s car market is the largest in the world.

Chinese car subsidies

Though increasing the small vehicle tax rate, the Chinese government is planning many measures to help improve the vehicle market. One plan is to encourage auto financing in China, including potentially allowing auto financers to sell corporate bonds. Subsidies for hybrid and electric cars are still being debated as well, and a decision will most likely be announced in July.

Beijing auto show this weekend

The Beijing auto show is scheduled to begin in China this Friday, and many automakers are hoping to make their mark on this emerging car market. Daimler, Volvo, Volkswagen, General Motors, GM, Toyota, Ford, Chevy and others will be displaying new vehicles. The range of vehicles cover the entire gamut – high-end cars with crystal seat decorations all the way down to tiny two-seater Ford hybrids.


Business Week
Associated Press

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