China to End Subsidies to Auto Buyers in Rural Areas

Bloomberg Business Week, December 31, 2010

By Bloomberg News

Dec. 31 (Bloomberg) -- The Chinese government will end subsidies for vehicles sales in rural areas starting tomorrow, three days after announcing a halt in incentives for buyers of small vehicles.

The incentives being stopped in rural areas include those for small cars and trucks, the Ministry of Finance said in a statement on its website today. That will end a policy started in March 2009 to foster automobile demand at the height of the global recession.

The government said Dec. 28 said it will raise the sales tax on vehicles with engines of 1.6 liters or smaller to 10 percent from its current 7.5 percent. The tax was 5 percent last year.

Policies including a consumption-tax rebate, subsidies for rural car buyers and incentives of up to 18,000 yuan to trade in older models helped China’s total vehicle sales jump 46 percent last year. The nation overtook the U.S. to become the world’s biggest automobile market.

China’s vehicle sales may reach 20 million units in 2011, according to Bill Russo, a Beijing-based senior adviser at Booz & Co.

--Michael Wei. With assistance from Ying Tian in Beijing. Editors: Michael Tighe, Vipin V. Nair.

To contact the editor responsible for this story: Bloomberg News at swong139@bloomberg.net

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