[A-List] New tax policies will help industry after recession
charlesb at cncl.ci.detroit.mi.us
Tue Jan 6 12:54:15 MST 2009
New tax policies will help industry after recession
Automotive News | 2009-1-7
SHANGHAI -- After posting annual growth of above 20 percent for years, auto
sales in China finally reached a turning point in 2008. In August, the market
started to shrink.
But the market downturn in 2008 was a blessing in disguise. It is prompting
the government to adopt new polices for the sustainable development of the
The American auto industry is reeling from the credit crisis and subprime
mortgage collapse. And the pain has spread to Europe and Japan.
But China is lucky. The car ownership rate, estimated at below 50 units for
1,000 people, is well below the international average, let alone those of
developed economies. The demand for cars, though temporarily suppressed, is
More importantly, the current market downturn has spurred the Chinese
government to make some long overdue changes in industry policies.
China sources half of its oil supply from overseas, but until quite recently
the government subsidized oil prices to keep them below international
That fueled exuberant sales of gasoline-guzzling vehicles. In the first half
of 2008, SUVs sales nationwide surged 41 percent from a year ago, according
to the China Association of Automobile Manufacturers.
But thanks to the current downturn of the global economy, crude oil prices
have dropped to around $50 (340 yuan) per barrel on the international market.
That provided the government the opportunity to raise the fuel tax.
Effective January 1, the consumption tax of gasoline was lifted to 1 yuan
(15 U.S. cents) per liter from previously 0.2 yuan (3 cents) while that of
diesel to 0.8 yuan (12 cents) from 0.1 yuan (1.5 cents).
Meanwhile, the government has also abolished most of the fixed fees charged
on vehicles. These fees mainly include road maintenance fees, which are about
1,440 yuan ($210) a year per vehicle. They also include small surcharges
levied on vehicles used for commercial purposes.
Shanghai continues to charge license fees, the only city to do so. License
plates were auctioned at above 30,000 ($4,400) in December.
Eager to boost auto sales, the government is widely expected to soon replace
the existing flat 10 percent vehicle purchase tax with one that varies
according to engine size.
In addition, it is planning to offer incentives to stimulate trading of used
cars and to encourage people to abandon old cars for new and energy saving
Of course, the government can do more to fix some longstanding problems
besetting the domestic auto industry, such as forcing inefficient state-owned
automakers to close or merge with healthy companies.
But thanks to the policy measures the government has taken since late last
year, China's auto industry will be able to grow in a more sustainable way
once the economic recession ends.
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