Tax Incentives Boost China's Car Production

by Mary Swire, Tax-News.com, Hong Kong

21 October 2009

Fiscal incentives for China's car manufacturers have helped them surpass the 10 million annual car production milestone; only the United States and Japan are ahead of China in car production in terms of numbers produced. However, experts predict that by year-end, China will be the world’s largest car manufacturer.

The Chinese Association of Automobile Manufacturers has reported that, during the first three quarters of 2009, 9.66m vehicles were manufactured. The 10 millionth vehicle to roll off the production line was marked by a ceremony on October 20.

Statistics disclosed by the Association in August revealed the impact of China's stimulus package for the industry, with sales increasing 70.5% in July on last year.

Under the measures provided by the government, purchase tax on cars with engines of 1.6 liters and smaller was halved, but raised on larger cars. A "replace old with new" program was introduced, but with little impact because of the relatively low subsidies (less than USD900) and the small numbers of old cars. China also set up a "cars to the countryside" program, which granted farmers buying light trucks and minivans a 10% discount up to a maximum of USD700 equivalent.

The "replace old with new" and "vehicles going to countryside" programs have been extended beyond end-2009, but the purchase tax cut is to be phased out by year-end, which is expected to bring in a surge of last-minute buyers. With demand continuing to outweigh supply, analysts believe that China will likely produce around 12 to 13 million cars by the end of 2009.

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