China’s Government to Stop Implement of Policy of Halving Tax on Vehicles Purchase

China’s government may no more implement policy of decreasing tax on purchasing vehicles with displacement of 1.6L or less since December 31 in 2016. However, China Association of Cars Manufacturers is planning to apply for extending implement period.

Implement of this policy, taking effect on October 1 in 2015, has led to development of the passenger vehicle market in China. Market demand is limited overall. Decrease in purchase tax may drive consumption of vehicles, leading to rise in automobile sales. However, policy may have more considerable impact on sales of vehicles in a longer period , according to experts in the field of automobile industry.

Sales of passenger vehicles in the Chinese market have been 15,834,000 units from October in 2015 to May in 2016. Vehicle with displacement of 1.6L or less took up 71%, making sales of about 11,200,000 units. Purchase tax on per vehicle can be decreased by RMB4, 000 yuan. Then, tax has been decreased by about RMB 45 billion yuan from October of 2015 to May of 2016.

Data from CAAM showed that sales of passengers vehicles in China have been 1,581,000 units with yearly rise of 11.98%，due to implement of this policy.

However, experts pointed out that short-term policy may have only led to transferring of demand of next year. Rise in sales of this year should have been sales of next year. Only long-term policy may create larger market of vehicles with displacement of 1.6L or less. Stability of policy may drive increase in sales.