China revives and extends vehicle purchase subsidy - report

By Graeme Roberts | 9 December 2015

Chinese buyers are turning away from minibuses towards domestic brand SUVs and MPVs. This GM-SAIC Buick GL8 is a premium model

Chinese buyers are turning away from minibuses towards domestic brand SUVs and MPVs. This GM-SAIC Buick GL8 is a premium model

As city new vehicle sales slow and traffic congestion increases, China is introducing purchase subsidies for rural region buyers, a media report said.

Unnamed sources "familiar with the matter" told Bloomberg News the financial aid would will be for passenger vehicles with engines under 1.6 litres and would also be for mini-commercial vehicles and light pickup trucks. A previous nationwide funding offer ended in 2010 but did not cover passenger vehicles.

Announcing sales figures for November, General Motors this week said volume had fallen 10% year on year at its Wuling joint venture due to continued contraction of the mini-commercial vehicle market so the government boost should prove a bonus for automakers in this sector.

Bloomberg noted the last introduction of rural auto purchase subsidies, in 2009 in the depths of the global financial crisis to help prop up economic growth, helped propel the nation past the US to become the world's largest new vehicle market. These new incentives would follow government purchase tax cuts on small passenger vehicles in October after lobbying by automakers concerned about the sharp slowdown in sales.

"The auto sector has a very long industry supply chain and can directly stimulate economic growth," Xu Gang, a managing director at Boston Consulting Group in Shanghai, told Bloomberg. "There's not much room to stimulate sales in big cities as vehicle ownership is approaching saturation levels."

That view echoes that of a top GM manager who told just-auto as long ago as 2010 that sales in 'Tier 1 and 2' cities would soon peak and that automakers' focus was shifting to 'Tier 3 and 4' cities and rural areas.

Bloomberg said China was spending to protect its vehicle industry, which employed about 3.5m people as of the end of 2014, and is a major contributor to tax revenue, even though a surge in vehicle ownership in the past decade has resulted in worsening gridlock and air quality in cities.

October's 10% to 5% tax cut on passenger vehicles with 1.6-litre engines or smaller, helped lift demand by 18% last month, with SUVs and minivans leading the surge, the reportr said.

"There has been a shift away from minibuses to domestic SUVs and MPVs which a new subsidy would likely underpin," Janet Lewis, a Hong Kong-based analyst at Macquarie Group, told Bloomberg. "It would likely benefit domestic automakers more than international brands."

The news agency reported rises in shares of Chinese automakers Geely, Chongqing and BYD in Hong Kong trading on Wednesday (9 December).