China's Chongqing Is First City to Offer Car Subsidy

Chongqing, China will subsidize purchases of vehicles made in the city as the first local government to offer such incentives since Premier Wen Jiabao said last month the economy faces increasing downward pressure.

Consumers would get as much as 3,000 yuan ($471) toward a vehicle, limited to those with engines displacing less than 1.6 liters, the Chongqing Daily reported on the government website on June 2. Chongqing, with an area the size of the U.S. state of South Carolina, is one of China’s fastest-growing regions.

The aid may boost sales for the venture between Ford Motor Co. (F), Mazda Motor Corp. (7261) and Chongqing Changan Automobile Co. (200625), in the world’s largest auto market. The program, tracking a national government plan to offer 6 billion yuan in subsidies nationwide, is expected to boost new car sales by 3 billion yuan in the municipality this year, the newspaper reported, quoting an unidentified government financial official.

“History shows that not only does Chongqing’s government follow in line with the central government policies, they often also add an extra oomph into it,” said Scott Laprise, a Beijing-based analyst at CLSA Asia Pacific Markets.

Even so, the municipality of 30 million people may be the only local government to introduce such incentives because some other cities, including Beijing, discourage growth in the number of vehicles, said Laprise.

Stimulus Forecast

Chongqing’s car-buying stimulus will last until February next year, and is in addition to subsidies for trading in locally made appliances, according to the report, which cited a teleconference held by local authorities on May 31.

The carmaker’s A shares have climbed 38 percent this year, compared with an 8.4 percent advance for the city’s benchmark Shenzhen Composite Index. Chongqing Changan’s first-quarter net income fell 80 percent to 146.4 million yuan, it said in a filing to the Shenzhen stock exchange on April 26.

Chinese Premier Wen said on May 20 the country will implement a fiscal policy to bolster economic growth, prompting economists at Credit Suisse Group AG (CSGN) to forecast stimulus spending of as much as 2 trillion yuan.

China’s official Xinhua News Agency reported on May 30 that the world’s second-largest economy has no plans to introduce stimulus measures on the scale deployed during the last global financial crisis. China had in November 2008 announced a 4 trillion yuan stimulus package.

Vehicle sales in China fell 1.3 percent between January and April from a year ago, according to the state-backed China Association for Automobile Manufacturers.