The Chinese government has decided not to withdraw subsidies for new energy vehicles at the end of 2020 as planned to help stimulate demand, according to local reports.

Sales of new energy vehicles, comprising mainly electric and plug in hybrid vehicles, have been in free fall since the government significantly reduced subsidies at the end of June 2019 – way before the COVID19 coronavirus became known.

China's State Council earlier this week said it would extend current subsidies for new energy vehicles until 2022 and waiver the purchase tax, which is normally 10% of the price, on these vehicles until further notice.

This latest financial support is aimed at stimulating domestic demand for new energy vehicles and follows recently introduced measures including stepping up the roll out of recharging infrastructure nationwide. 

Local governments have also cut restrictions on issuing licence plates for new energy vehicles while state owned enterprises have also been encouraged to switch their purchases from conventional internal combustion engines

The government's efforts to contain the coronavirus pandemic are also beginning to work with overall vehicle sales in March seen rebounding sharply from February's low when most of the economy was in lockdown.

Volkswagen this week said it expected passenger vehicle sales to rebound to around 1m units in March from around 240,000 in February when the market declined by over 80%.

VW Group China CEO Stephan Woellenstein told local reporters "there are more and more signs that business in China is recovering. By the middle of the year, we could be back to last year's levels. Hope is returning to the Chinese market".