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China to defer the implementation of Stage VI Standard?

Flagging domestic sales of cars and factories working at reduced capacity have prompted the China Association of Automobile Manufacturers (CAAM) to quietly propose that the central government put off the nationwide implementation of new, tougher automotive emission control regulations, known as National Emission Standard Stage VI, according to a February 17 document seen by Mysteel Global stamped by the association.
The document was submitted to China’s Ministry of Ecology and Environment and the Ministry of Industry and Information Technology, imploring the ministries to permit a transition period for domestic enterprises on the coming Stage VI Standard, in order to help car makers tackle the jolt they have received from the outbreak of novel coronavirus disease (COVID-19), Mysteel Global noted from the document.

The requirement as it stands now is for vehicle makers to ensure that starting July 1 2020, all light vehicles for sale and those sold pending registration must meet emission standard Stage VI. The document noted that car dealers had managed to digest stocks of Stage V vehicles and that manufacturers had also accelerated the technical development of Stage VI vehicle production in order to have cars confirming to the new regulations in the market by April, according to the file.

However, the outbreak of COVID-19 in January had led car makers, component producers and dealers to delay restarting operations after the end of Chinese New Year on February 3, it noted. This delay had set back the makers’ initial plans for car sales in Spring while the new standard switch-over is exerting huge pressure on enterprises, it added.

During 2019, local authorities of some regions across China had brought forward the implementation of Stage VI Standard, thus car producers opted to clear their Stage V stocks by means of lowering prices, which caused ripples in the market. “In order to avoid a repeat this year, the association proposes that enterprises be allowed a transition period,” the CAAM proposal stated, “and that preferential policies on finance and (vehicle) taxation should be introduced to boost consumption.”

Calls to the association’s Beijing offices on Tuesday went unanswered, but Chen Shihua, CAAM’s vice secretary confirmed when interviewed by China Securities Journal on February 21 that the association had submitted the proposal but that details remain confidential. Whether Beijing would approve the plan also remained unclear, Chen commented.

“If the new standard takes effect later, it will exert a positive influence on dealers as many of them still face risks with the large quantity of (Stage V) vehicles they have in their yards,” a Beijing-based industrial expert observed. “A delay could protect dealers from potential bankruptcy caused by tight cash flow,” he told Mysteel Global.

During last year’s second half, local authorities of some cities and regions such as Beijing, Shanghai and North China’s Tianjin had already mandated that vehicles sold in their jurisdictions conform to the Stage VI Standard, a key factor that dampened the auto industry’s performance last year. This also prompted industry calls for supporting policies for the auto market as the sector is a huge employer and a major industry which helps to drive the economy.

At a press conference on February 20, Wang Bin, deputy director of the Ministry of Commerce’s market operation division said the government will work out a series of policies with relevant departments to stabilize auto consumption and ease the negative impact of the virus. In the meantime, local authorities would be encouraged to introduce measures based on their own situation, boost sales of new-energy vehicles, loosen restrictions on vehicle purchases and stimulate old-for-new upgrading needs, Wang pledged.

Last week, Foshan City in South China’s Guangdong province became the first city to introduce policies aimed at encouraging automotive consumption this year. A February 17 notice showed that starting March 1, car owners opting to buy new vehicles could get a subsidy of Yuan 2,000-5,000/unit ($285-713/unit). Foshan is a major production hub for finished autos and automotive components, Mysteel Global notes.

Written by Anna Wu, wub@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com