The biggest commercial effect of the new taxes is likely to fall on sport utility vehicles and luxury sedans. China is reducing slightly its tax on vehicles with an engine of 1 to 1.5 liters, to 3 percent from 5 percent, while leaving the rate unchanged for slightly more powerful engines and raising rates for those with the most powerful engines.

The tax rate will climb to 20 percent, from 8 percent now, for vehicles with engines over 4 liters.

The taxes are likely to hit foreign automakers more than Chinese automakers, which tend to produce models with smaller engines. American automakers, with some of the largest models, may feel the greatest impact.

The big question for automakers is how much of the tax to pass on to consumers, as the tax is collected from the manufacturers. With a week and a half remaining until the new tax takes effect, marketing executives were scrambling on Wednesday to assess the impact and no automaker immediately announced price increases.

"We are doing the calculations and assessing the impact, and on the other hand watching the actions of our competitors," said Kenneth Hsu, a spokesman for Ford's China operations, which sell everything from compact cars with 1.6-liter engines to Lincoln Navigator full-size SUVs with 5.4-liter engines. (Full text )

Bloomberg: The government of the world's third-largest vehicle market is trying to encourage consumers to choose cars with smaller engines to cut fuel consumption as rising incomes and falling car prices make cars affordable to more people.

The move may hurt the assemblers of sports-utility vehicles and luxury sedans such as Ford Motor Co.'s Volvo unit, General Motors Corp.'s Cadillac sedans and Bayerische Motoren Werke AG's 3-Series and 5-Series cars. Volvo this week announced a plan to make the S40 luxury sedan in southwestern China's Chongqing city. (Full text)

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