The Beijing authorities have decided that car sales need to be limited due to chronic road congestion and poor air quality in Chinas capital city

The Beijing authorities have decided that car sales need to be limited due to chronic road congestion and poor air quality in China's capital city

Beijing municipal authorities have introduced stringent restrictions on new vehicle registrations on 1 January in the capital in an effort to ease congestion and air pollution.

The city authorities announced they will only allow 240,000 new vehicle registrations this year - roughly one-third of last year's total.

A monthly average of 20,000 new vehicle registrations will be allowed this year, with private buyers accounting for 88% of the allocation, or some 17,600 passenger vehicles per month. Individuals can submit just one vehicle registration application and must prove they are local Beijing residents, or foreigners who have been working in Beijing for at least a year.

A monthly 'lucky draw' will be held to determine the successful applicants, the first scheduled to be held on 23 January. City authorities said they received 60,000 new online registration applications at the official website in the first three days of January - three times the monthly quota.

Unsuccessful applications will be automatically included in the following month's draw.

The impact of this scheme on the national market is expected to be limited.

"It could potentially reduce vehicle sales by up to 300,000 units", according to John Zeng - an analyst at IHS Global Insight based in Shanghai.

Stronger replacement sales will make up part of the deficit, while buyers may also register cars in neighbouring provinces. The worst hit from these restrictions will be local dealers, which are expected to see a notable drop in sales volumes.

But the national automotive market could also come under additional pressure from higher interest rates, as the central government moves to ease inflation in 2011.

The Ministry of Finance has also withdrawn small car incentives introduced during the global financial crisis more than a year ago. Sales tax on cars up to 1.6L, which account for around 60% of total vehicle sales, returned to 10% on 1 January.

Terry Johnsson, vice president for GM's China operations, remains confident that overall vehicle sales in China will increase by 10%-15% in 2011, however.