The Chinese government will extend vehicle replacement subsidies until the end of 2010, as fears grow that the market may cool off in the second half of the year.

The Ministry of Commerce confirmed the decision over the weekend, adding the policy helps to retire old, high-polluting vehicles and also helps support the domestic market.

The subsidies, first introduced in June 2009, applies to old cars and trucks traded in at the point of purchase and range up to CNY6,000 (USD 880). The Ministry said around 127,000 vehicles had been replaced since the programme was introduced, with total subsidies paid so far amounting to around CNY 15 billion.

Earlier this month, the government introduced subsidies for the purchase of electric and hybrid vehicles in five of its main cities. Buyers in Shanghai, Changchun, Shenzhen, Hangzhou and Hefei will receive CNY 60,000 in government subsidies for the purchase of electric vehicles and CNY 50,000 for hybrid vehicles.

Tony Pugliese