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China leans on auto subsidies to jump-start post-virus economy

Ownership caps will be eased as car sales plunge in first quarter

Car dealerships in Beijing, seen here in a Feb. 27 photo, and the broader industry have been hit hard by the outbreak, with China's auto sales in the first two months of the year dropping 37%.   © Reuters

BEIJING -- After declaring victory on stemming the coronavirus outbreak, China aims to stimulate depressed consumption with subsidies for auto purchases and looser caps on car ownership.

Auto sales in China plummeted 45% in March from a year earlier, according to an industry group, following a 37% decline for January and February. The auto industry makes up 10% of the country's gross domestic product.

Outside of Hubei Province, the epicenter of the outbreak, most auto plants have restarted and supply chains are steadily being restored. During a meeting in late March headed by Premier Li Keqiang, officials decided to extend subsidies for new energy vehicles by two years.

Owners of new energy vehicles -- a catch-all term for electric vehicles and plug-in hybrids -- receive at least 10,000 yuan ($1,410) in tax breaks per vehicle. The program was scheduled to expire at the end of the year, but the government seeks to spur an economic recovery by supporting demand.

Meanwhile, local authorities have been called on to offer their own demand-side policies for the auto industry. Relaxing restrictions on license plates, a measure put in place to ease congestion, presents one avenue.

The city of Beijing is considering issuing 100,000 more license plates, limited to electric vehicles and plug-in hybrids. The move is expected to result in roughly 20 billion yuan in additional auto sales.

Guangzhou will issue at least 10,000 additional license plates a month through auctions. The city of Hangzhou said it will ease the cap on license plates as well.

Some cities are looking at loosening restrictions on pickup trucks, which are generally not allowed to enter downtown areas.

Separate subsidies for vehicle purchases have been launched in at least nine cities. In Guangzhou, home to several auto plants owned by both domestic and foreign players, 450 million yuan has been allocated for the program. People trading in for passenger vehicles that conform to new emissions standards will receive about 3,000 yuan in subsidies.

In the northern city of Changchun, where the state-owned automaker China FAW Group built its main plant, purchasers will be provided with 4,000 yuan in subsidies.

The Guangxi autonomous region and the city of Changsha are rolling out subsidies for locally made autos. Starting Friday, Sichuan Province will dole out subsidies of at least 1,000 yuan for people buying subcompacts in rural areas.

The recent policy decisions appear to be paying off. "In regions that instituted financial subsidies, dealerships are showing recoveries approaching year-earlier performance," said an executive at a Japanese automaker operating in China.

The COVID-19 outbreak has sparked demand from people who would rather commute to work in their own cars rather than use public transportation. With stay-at-home orders lifted, the subsidies give consumers an excuse to visit once-vacant dealerships.

Regional governments have drawn up plans to offer gift certificates as well, with China's overall retail sales by value plunging 20.5% in January and February.

The gift certificates and other incentives that have already been rolled out add up to 35 billion yuan, according to an estimate by a major brokerage reported by the Chinese media.

Hunan Province issued up to 5.2 billion yuan in gift certificates to members of labor unions. Each recipient receives up to 300 yuan, and the certificates are valid until the end of the month.

Zhejiang, a province hit hard by the coronavirus, has started handing out 1.1 billion yuan in gift certificates that can be used mainly in tourist spots emptied out by the epidemic. Shandong and Hebei provinces have issued similar certificates.

"We still haven't recovered from the slump between January and March, so going forward I look forward to policies that will stimulate consumption," said the manager of a restaurant in Zhejiang.

Jiangxi Province has called on the government and state-owned enterprises to tack on Friday afternoons to the weekend in a bid to stimulate consumption.

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