The Chinese government plans to cut restrictions on the recycling of scrapped cars, according to local reports, in a move expected to stimulate purchases of new and used vehicles.

The government is expected to allow authorised remanufacturing companies to reuse scrapped engines, gearboxes, front and rear axle and frames. This is expected to significantly increase the value of scrapped cars, providing an additional incentive to motorists to replace old cars.

Currently these main parts are only allowed to be sold as scrap metal at a value of around CNY1,300 (US$195) per metric ton.

The new rules are expected increase vehicle replacement demand in the country, at a time when the local market is showing significant signs of weakness.

China Passenger Car Association secretary-general Cui Dongshu said, as vehicle ownership in China continues to rise, there was an urgent need for new rules on vehicle scrappage.

There are an estimated 240m vehicles in use in China at present and if the average international scrappage ratio of between 4-6% were to be applied at least 10m vehicles would become obsolete this year.