The Chinese government has said it will partially extend small car incentives for another year, until the end of 2010, to help ensure continued growth in the domestic car market.

The current stimulus programme is due to expire at the end of December and includes a reduction in the purchase tax from 10% to 5% for cars with an engine capacity of below 1.6L.

The domestic vehicle market expanded by 42% to over 12.2m units in the first eleven months of 2009, from 8.63m units a year earlier. Full-year sales are expected to rise to a new record of 13.5m units, compared with 9.4m units in 2008. Analysts predict that the government will need to continue to stimulate the market if it is to continue to grow next year.

From January 2010, the purchase tax will be increased just partially, to 7.5% of the total vehicle price for these models. The government also plans to raise incentives on traded-in cars from between CNY3,600-6,000 to CNY5,000-18,000, depending on vehicle type, to encourage replacement purchases. It also plans to extend alternative fuel vehicle subsidies from 13 to 20 cities across the country next year.

Tony Pugliese