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Economy

China races to rev up sluggish auto sales

Looser plate limits on table as Beijing braces for trade war impact

Shanghai has restricted license plate issuance since 1994 in an effort to tackle congestion and air pollution.
Shanghai has restricted license plate issuance since 1994 in an effort to tackle congestion and air pollution.   © Reuters

BEIJING -- The Chinese government is looking at more measures to bolster an auto market suffering from weakening demand, seeking to fortify a vital part of the economy as trade tensions with the U.S. escalate.

Steps to loosen local license plate limits are among the ideas under consideration, according to a source at the Ministry of Industry and Information Technology. The restrictions were first adopted in Shanghai in 1994 and have since spread to around 10 provinces and cities, including Beijing. They target mostly gasoline-fueled autos and are meant to address urban gridlock and reduce air pollution.

The main proposal under examination by the central government would boost the number of plates issued by half this year compared with 2018, and to double the 2018 figure in 2020. Another suggestion entails exempting households without autos from the restrictions.

An executive at a state-owned automaker expects such measures to fuel demand, saying that "big cities have large middle-class populations that are eager to buy."

China was by far the world's largest new-auto market last year, with 28 million sold -- roughly 60% more than in the U.S. Yet this represented the first annual decline in 28 years. The slump has continued into 2019, with January-April sales down 12% on the year.

Inventories are piling up at a portion of major automakers, and a growing number of companies have scaled back purchases of parts and steel sheet or put off investing in such equipment as robots.

"It's having a negative impact on investment and consumption in the Chinese economy as a whole," a local government official said.

With the auto industry accounting for about a tenth of China's gross domestic product, the government is keen to reverse the trend.

The state may offer subsidies or other support for trading in older cars with high emissions and poor gas mileage for newer, more efficient models or so-called new-energy vehicles, such as electric cars. Mandating the use of new-energy autos for postal deliveries, shipping and garbage collection has also been floated.

These steps would come on top of other measures already implemented this year. After a government call for subsidies to encourage rural auto sales, a number of automakers have begun offering such incentives. SAIC Volkswagen, a joint venture between Volkswagen and state-owned SAIC Motor, is providing discounts between 2,000 yuan and 30,000 yuan ($289 to $4,340), according to Chinese media.

The government also lifted a ban on exports of secondhand autos this month. Industry watchers predict that overseas sales will come to make up about 10% of the used-auto market, which is now about half the size of the market for new ones by volume.

"If exports of secondhand autos increase, more customers will probably buy new or used vehicles to replace [their old cars], giving the market a shot in the arm," an industry insider said.

The issue has made a mark on the Sino-American trade war itself. China kept auto parts off the list of $60 billion in American goods on which it will raise tariffs June 1, likely in an effort to avoid higher costs that could further dampen demand in an industry with significant influence over the economies of both countries.

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