The dream run in China's car market is likely to come to a screeching halt in 2011 after Beijing announced the withdrawal of incentives on small cars with a 'Made-in-China' tag and imposed restrictions capping the number of new vehicles allowed on the roads. The incentives given to the industry as part of stimulus measures in 2008 to cope with the global economic crisis are set to lapse, with China announcing a strict new policy to curb car consumption.
"Don't be optimistic for China's automobile market next year," Jia Xinguang, a Beijing-based independent auto analyst, said. "At the expiry of the stimulus measures, especially the tax policy, there will be a restructuring in the auto market in terms of engine capacity," he told state-run China Daily.
Jia said that domestic auto-makers, especially those with models with engine capacities of 1.6 litres or less, are faced with an uphill task to maintain the sales momentum in 2011. "They have to make great efforts to improve quality and strengthen the brand of their cars," he said.
China's auto sales surged to 16.4 million in the 11 months to November, according to the China Automobile Industry Association. Whole-year sales are expected to hit 18 million units in 2010, making the nation the world's largest auto market for the second year in a row.
The China car market expanded by almost 30 per cent this year, but analysts have predicted that its growth will slow to 10 to 15 per cent or even lower in 2011, after Beijing came out with a strict policy to curb car consumption.
China's Ministry of Finance on Tuesday announced that the two-year consumption-tax cuts for smaller cars were being withdrawn from next year.
"Effective from January 1, 2011, a sales tax of 10 per cent will be imposed on cars with engines of 1.6 litres or smaller, from 5 per cent in 2009 and 7.5 per cent currently," according to the ministry's website.
The government launched stimulus policies for the auto industry in 2009, including tax cuts for buyers of cars with engines of 1.6-litre capacity or smaller, subsidies for rural car-buyers and incentives for trade-in cars.
That move helped China surpass the United States as the world's largest auto market that year, which continued in 2010. However, the ministry's statement did not say whether the 3,000 yuan ($454) rebate for fuel-efficient cars would remain in place in 2011, along with subsidies for farmers that traded in their old vehicles to buy new ones.
The Beijing municipal government last Thursday unveiled a plan to limit the number of cars sold in the city next year to 2.40 lakh, about two-thirds less than the cap fixed for the 2010, to ease the traffic chaos on the city's congested roads.
