[A-List] New tax policies will help industry after recession

[Charles Brown]

New tax policies will help industry after  recession


Yang Jian 

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  
domestic industry. 

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 
still healthy. 

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 
levels.  

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 
ones. 

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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