China's auto market in recovery fast-lane, thanks to tax cuts

Last month, two-thirds of all passenger cars sold in China benefited from a generous reduction in the country's car purchase tax, according to the new statistics released by the State Taxation Administration, under a policy to run until end-December and implemented to boost sales of automobiles. The purchase tax, which usually accounts for 10% of a car's ticket price, has now been cut to 5%, as Mysteel Global reported.

The central government had announced in late May that the purchase tax for passenger vehicles priced at under Yuan 300,000 ($44,820), with engine displacements within 2 liters or less and purchased between June 1 and December 31, would be reduced, as reported. Last month, sales of some 1.09 million cars enjoyed the tax reduction.

Data from the country's taxation agency showed that the tax cut saved consumers a total of Yuan 7.1 billion last month. Among the total, Yuan 3.4 billion was slashed for passenger cars with 1.6-liter or smaller engines, and Yuan 3.7 billion was for vehicles with engines ranging from 1.6 liters to 2 liters.

Earlier, the China Association of Automobile Manufacturers (CAAM) and China Passenger Car Association (CPCA) had estimated that the tax cut should help generate additional sales of approximately 2 million units this year.

"With the introduction of the purchase tax policy and the further loosening of the pandemic prevention and control, governments at all levels have recently introduced a package of policies to boost the economy and promote consumption," said Cui Dongshu, CPCA's secretary-general. "This has played a certain role in promoting the recovery of the automotive market, and both the market mood and transaction volume have improved," he said in a statement.

Over June 1-26, China's total sales of passenger cars of all engine displacements reached 1.42 million units, up 27% on year and 37% on month, the CPCA data found.

Aside from the halving of the car purchase tax, across the country other incentives are also luring potential car buyers back, including coupons and subsidies.

For example, Zhenzhou city in Central China's Henan province has released 'digital' coupons to encourage local people to buy passenger cars, under which those who purchase a new car and register it in the city can receive a maximum discount of Yuan 8,000. In Northeast China's Shenyang, an individual buying a passenger vehicle (for non-commercial use) priced at Yuan 50,000-200,000 in the city will receive a subsidy of up to Yuan 5,000, Mysteel Global notes.

In addition, governments in major cities such as South China's Guangzhou and Shenzhen and East China's Shanghai have increased the number of vehicle license plates they will issue this year under long-established quota schemes in many urban centers as a way for authorities to regulate vehicle ownership and so ease road congestion.

Regarding the quota increase for car purchases in some cities, CAAM deputy secretary-general Chen Shihua commented that "it can quickly and directly lead to the rise in their local car purchase volume. The effect is very obvious."

Written by Rong Zhang, zhangronga@mysteel.com

Edited by Zhenqi Yang, yangzhenqi@mysteel.com