Subsidies and tax breaks for purchases of electric vehicles to be extended by two years

The State Council has unveiled a raft of measures to revive slumping car sales amid the novel coronavirus pneumonia pandemic, as industry analysts call for more aid for carmakers badly bruised by weak demand.

The Cabinet announced after its executive meeting on March 31 that it will extend tax breaks and subsidies on electric-vehicle purchases by two years to boost the sluggish market.

The extension will enable buyers to enjoy a subsidy of up to 25,000 yuan ($3,525) per vehicle and exemption from a 10 percent purchase tax.

The meeting also decided to reduce the value-added tax on the sale of used vehicles by special dealers to 0.5 percent, down from 2 percent, from next month to the end of 2023.

Central government financing will also help truck owners in key regions, such as the Beijing-Tianjin-Hebei cluster, replace trucks that do not meet emission standards, the Cabinet said in a statement.

China's auto sector suffered a 79.1 percent year-on-year drop in sales in February and expects a fall of around 8 percent this year due to the pandemic, according to the China Passenger Car Association.

The sector posted a second consecutive year of declining sales last year, with new car sales dropping 8.2 percent to 25.8 million units.

Over 97 percent of businesses in the auto sector have resumed production, with 82 percent of employees having returned to their jobs by March 31, according to the Ministry of Industry and Information Technology.

Wang Bin, deputy head of the Ministry of Commerce's Department of Market Operation and Consumption Promotion, told an online news briefing on Thursday that the accelerated spread of the pandemic overseas could deal a further blow to the growth of the auto sector.

The sector, a key pillar of the national economy, is also an area where consumption can be expanded and upgraded.

Wang said automobile production and related sectors accounted for 10 percent of the country's tax revenues and employment, with one job created in the auto sector leading to the creation of another seven jobs in related sectors.

The latest measures adopted by the central government will help reinvigorate the auto sector and its jobs, accelerate the rebound of consumption and contribute to the shaping of a strong domestic market, he added.

Wang said the Cabinet's decision to cut the VAT faced by used-car dealers would help China's secondhand car market become larger and more professional.

"It will also help unleash the potential of the used car market and create a broader market space for the sale of new cars," he said.

To boost the sluggish market and encourage car sales, authorities in a number of cities have come up with incentives, mainly in the form of subsidies to consumers.

In Guangzhou, the capital of Guangdong province, city authorities announced a plan on Friday that offered each buyer of a new-energy vehicle a subsidy of 10,000 yuan and more than doubled the number of license plates made available each month.

In Ningbo, Zhejiang province, people who buy a locally produced and registered vehicle from March 25 to Sept 30 will receive a subsidy of 5,000 yuan.

Authorities in at least 15 provinces or cities have unveiled policies to bolster the auto market, either in the form of purchase subsidies or increasing the number of license plates made available to residents.

However, some industry insiders said the policies rolled out so far might not be enough to serve as a catalyst for an across-the-board market recovery.

Cui Dongshu, secretary-general of the China Passenger Car Association, said the best way to remove barriers to car sales was through lifting caps on car license plates, a key countercyclical tool during an economic slowdown.

"There is still huge untapped potential in many areas, and only the authorities in Guangdong have shown relative enthusiasm in doing so," he said.

At least seven cities, including Beijing, Shanghai, Guangzhou and Shenzhen－also in Guangdong－as well as Hainan province have imposed caps on car purchases by requiring residents to obtain license plates either through bidding or a lottery.

Cui said that even though government departments had rolled out a slew of policies to spur car purchases, sales had slid by a further 8 percent last year, an indicator that government needed to provide more fiscal incentives.

Incentives were also needed in second-and third-tier cities, as well as counties and rural areas, he said.