Reuters
Beijing's tweaking of its car purchase incentives surprised many as lacking in generosity, but analysts expect pent-up demand in smaller cities to keep the world's biggest car market growing by double digits next year.
China said on Wednesday it would raise the sales tax rate on small cars to 7.5 percent next year, a move that could save it roughly 10 billion yuan ($1.47 billion) a year, according to China's official auto industry association.
That is still lower than the 10 percent before Beijing halved the rate this year on cars with 1.6 litre engines or smaller, fuelling a 50 percent spike in car sales in the year to date.
But many automakers had hoped Beijing would maintain the generous stimulus beyond the planned Dec. 31 expiry, with some even anticipating the preferential tax rates to spread to 1.8 litre-engine cars.
"It's indeed a big surprise," said a senior executive with sport utility vehicle (SUV) maker Great Wall Motor Co (2333.HK).
"We had heard so much positive rhetoric from government officials lately and there was absolutely no hint that the tax would go up," said the executive, asking not to be identified because of the sensitivity of the matter.
Shares in Hong Kong-listed Chinese automakers fell on Thursday, with Geely Automobile Holdings (0175.HK) plunging 8.2 percent to close at $HK4.23.
Dongfeng Motor Group Co (0489.HK), the Chinese partner of Honda Motor Co (7267.T) and Nissan Motor Co (7201.T), ended down 6 percent at HK$10.96. Denway Motors (0203.HK), also a Honda partner, finished the day down 8.1 percent.
"This is bad news as car buyers have to pay more now," said Johnny Wong, an analyst at Yuanta Research.
But mainland-listed automakers fared better, underscoring the mixed assessment of the new policies as Beijing simultaneously announced bigger rebates for replacing old cars with new ones, to 5,000-18,000 yuan from 3,000-6,000 yuan.
China also said it would subsidise the purchase of "environmentally friendly" vehicles in five cities selected for a pilot programme to private car buyers for the first time. It did not provide further details.
Shanghai-listed SAIC Motor Corp (600104.SS), the country's biggest automaker and a partner of General Motors Co [GM.UL] and Volkswagen AG (VOWG.DE), dipped 0.4 percent, while Chongqing Changan Automobile Co (000625.SZ), a Ford Motor Co (F.N) partner, ended up 2 percent. FAW Xiali (000927.SZ) rose 1.6 percent.
STILL UPBEAT
Overall, industry observers remained sanguine on the prospects of the China market, a safe haven for carmakers from GM to Toyota Motor Corp (7203.T).
"Cars are no longer a luxury item, and not just in cities like Beijing or Shanghai," said Qin Xuwen, an analyst with Orient Securities.
"Sales in third-tier and fourth-tier cities have far outpaced the growth in big cities in the past year. I don't think a mere 2.5 percent hike in sales tax is enough to scare away buyers."
After a turbo-charged year in 2009, China's auto market is expected to return to a more normal growth next year of roughly 15 percent in 2010, industry executives and watchers said. This year, China will easily surpass the United States as the world's biggest auto market with sales of about 13 million vehicles. ($1=6.827 Yuan) (Editing by Chang-Ran Kim and Lincoln Feast)
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