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China widens its lead as the world's No. 1 car market

Volkswagen back on top as tax cuts help overall sales climb 14% in 2016

GUANGZHOU/BEIJING The Chinese market for new automobiles enjoyed double-digit growth last year as consumers took advantage of a small-vehicle tax break, with Germany's Volkswagen reclaiming its No. 1 position, according to an industry report.

Car sales in China are now 60% higher than in the U.S.

Total sales of domestically produced vehicles, including commercial vehicles and exports, rose 13.7% on the year to 28,028,200 units on a factory shipment basis, according to a report issued by the China Association of Automobile Manufacturers on Dec. 12. Passenger car sales shot up 14.9% to 24,376,900 units, while commercial vehicles climbed 5.8% to 3,651,300 units. Growth was particularly notable for passenger cars qualifying for the tax incentive launched in late 2015.

The growth was the strongest since the 13.9% of 2013 and helped China retain the title of world's No. 1 auto market for the eighth straight year. With the first double-digit increase in three years, car sales in China surpassed those in the U.S. by 60% and those in Japan by 460%, according to the manufacturers association.

VW, still reeling from its emissions-cheating scandal, nevertheless reclaimed the top spot in terms of market share from General Motors. The American manufacturer underperformed the overall market, with sales climbing just 7%.

South Korea's Hyundai Motor, the No. 3 player, faced intensifying price wars with Chinese competitors. Its sales grew 4.6% -- the slowest among major automakers.

Japan's Nissan Motor came in fourth, followed by U.S. automaker Ford Motor. Honda Motor claimed sixth place and compatriot Toyota Motor seventh.

Sales at Great Wall Motor jumped 26% to 1.07 million vehicles, making it the first Chinese automaker focusing solely on its own brands to break the 1 million mark. Its SUVs sold particularly well.

By type of passenger car, SUVs are currently in vogue in China. The 9.05 million units sold last year, up 44.6% from a year ago, represented nearly 40% of all passenger vehicle sales. Sedans sold 12.15 million units, up just 3.4%.

The 2015 tax incentive halved the tax rate for small cars with engine displacements of 1600cc or less to 5%. This class of car sold 17.6 million units in 2016, up 21.4% from the preceding year.

The provisional tax incentive, which expired at the end of 2016, has been extended to the end of 2017 at a new, higher rate of 7.5%.

For 2017, the association sees sales growing only 5% to 29.4 million units, despite the extension of the tax break. Many industry watchers believe the continued tax break at 7.5% will reduce the risk of car sales slowing in the coming year, and expect growth of 5% to 7%.

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