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China’s Ministry of Finance said on its official website the tax
rate on small-engine vehicles, currently at 5 percent, will
rise, but only to 7.5 percent. That rate, taking effect on Jan.
1, 2017, is still below its normal 10 percent.
The ministry said it plans to levy the normal 10 percent tax on
small-engine cars starting on Jan 1, 2018.
"Any policy support is good for the industry under current
circumstances," said the China head of a global premium brand,
adding that a relatively weak market is being propped up by the
tax cut as well as discounts and other purchase incentives by
automakers.
Normally, consumers would rush to make last-minute vehicle
purchases if they sensed a tax rebate would expire, boosting
sales significantly, only to result in an equally significant
fall in demand once the benefit is eliminated.
"At least this time we will unlikely undergo that type of wild
year-end ride in sales,” the executive told Reuters. The
executive declined to be named because he is not authorized to
speak to reporters.
Yale Zhang, managing director of Shanghai-based consulting firm
Automotive Foresight, said demand for passenger cars as a result
of Thursday’s announcement will likely be weaker but still
manage to grow 3 percent to 5 percent next year, compared to the
16 percent growth he predicts for China’s passenger car market
for this year.
“This is good news to the market,” Zhang said. “At least car
demand will remain steady to relatively robust,” he said, adding
the market would have shown no growth next year if the tax cut
on small-engine cars was discontinued.
China's auto market struggled with weak sales in 2015 amid an
economic slowdown, but has rebounded strongly since the purchase
tax rate for vehicles with 1.6-litre engines or below was halved
to 5 percent in October 2015.
A particularly significant beneficiary of the rebound has been
German Volkswagen <VOWG_p.DE> whose product lineup is tilted
heavily towards small sedans with engines smaller than 1.6
liter, Zhang said.
Experts and auto industry associations had predicted a steep
drop in growth if the tax cut was allowed to expire as planned
at the end of this year. Industry officials, though, had said
China was considering extending the cut.
Earlier this week an official at the China Association of
Automobile Manufacturers told reporters that China's overall
automobile sales could increase 13 percent this year from 2015.
(Reporting By Norihiko Shirouzu; Editing by Muralikumar
Anantharaman)
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