Auto sector gets a shot in the arm

By Li Fei (China Daily)
Updated: 2009-01-15 07:36

Sales tax on vehicles with engines of less than 1.6 liters will be halved and exchange of old vehicles for new ones with smaller engines subsidized to boost the auto industry.

A worker changes price tags at a gas station in Andingmen, Beijing, at midnight last night after the government cut fuel prices by up to 3.2 percent. [China Daily/Wang Jing]

A total of 5 billion yuan ($731.45 million) will be set aside for the subsidy to be given to farmers. And sales tax will be cut from 10 percent to 5 percent from Jan 20.

The stimulus package for the country's auto industry, the third largest in the world, was announced by the State Council Wednesday after its sales growth fell to a 10-year-low of 6.7 percent last year.

The package is expected to boost the steel industry and designed to promote fuel-efficient and low-emission vehicles, too.

"In order to adjust and revive the auto sector, we must implement a proactive consumption policy to stabilize and boost auto demand," the State Council said.

"Any unreasonable rules" hampering auto sales would be removed in order to spur demand.

The government said it would support the alternative-energy vehicle sector by promoting the mass production of electric-powered cars in big and medium cities.

In the next three years, the government will provide 10 billion yuan ($1.5 billion) to automakers to help upgrade their technology and develop alternative energy vehicles.

The move, likely to benefit more than 80 auto- and steel-related firms in Shanghai and Shenzhen, is part of a series of industry specific policies to stimulate the economy.

The government is expected to release supportive polices for eight other industries, including shipbuilding, petrochemicals and textiles, in the next few days.

Analysts said the package announced yesterday would help the two pillars of the national economy immensely. "The wide-ranging supportive measures will certainly give the auto industry a shot in the arm," said Jia Xinguang, a Beijing-based auto analyst.

"But it's hard to say how big an impact it would have in the short term", he said.

About 9.38 million vehicles were sold in the country last year against a target of 10 million.

The slump in demand saw the combined January-November profit of the country's 19 biggest automakers fall 0.5 percent year-on-year to 65.6 billion yuan, China Association of Automobile Manufacturers (CAAM) said on Monday.

A quarter of the 45 carmakers tracked by the association failed to reach even half of their annual sales targets, CAAM said.

Steel sector gets booster package

The State Council approved a stimulus package Wednesday to help the steel industry weather the international financial crisis.

The salient features of the package are:

The government will strictly control the increase in the country's steel-making capacity and continue closing down low-tech mills.

It will adopt a flexible tax policy on steel exports to stabilize the country's share in the global market.

It will encourage restructuring of steel-makers and cultivate competitive large-scale steel groups.

Other support measures include allocating a special fund for technology upgrades, research and innovation, restoring order in the iron-ore imports sector and increasing steel consumption in the domestic market.

China is the world's largest steel producer, far ahead of Japan, the second largest, with an estimated output of 500 million tons last year. But the global financial crisis has dealt the worst blow to the domestic steel industry, by forcing demand to drop sharply both at home and abroad.

The stimulus package is aimed at helping domestic steel-makers overcome the most difficult time, and handle some of their long-term problems, said Chu Xueliang, an analyst with China Jianyin Investment Securities.