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Govt policies boost auto sales in countryside

By Li Fangfang (China Daily)
Updated: 2009-03-30 07:55

The government's stimulus plan is pushing up auto sales across China's vast rural regions and giving the country's auto industry a shot in the arm.

The government halved purchase tax on vehicles with engines of 1.6 liters or less, which make up more than half of the market, in January.

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Another stimulus policy, which runs from the start of March to end of 2009 and is worth 5 billion yuan, subsidizes farmers replacing three-wheeled vehicles or outdated trucks with small, 1.3-liter or less engine vehicles.

Chinese farmers and other rural residents who buy a new minivan or light truck can also get a subsidy equal to 10 percent of the purchase price, up to a maximum of 5,000 yuan.

Rural drivers who replace an existing light truck or minivan with a new one can get a further 3,000 yuan.

"It's really a favorable policy for China's homegrown auto brands," said Jia Xinguang, an auto analyst based in Beijing. "And it will definitely boost auto sales in China's hinterland."

Local governments are following the central government. The Hunan provincial government said it is promoting rural vehicle sales by negotiating discounts with automakers and through governmental subsidies and interest-free loans.

"We will cut the price of our multi-purpose vehicle from 72,800 to 59,800 yuan (in Changsha county, in Hunan)," said Pan Huiqiang, general manager of Changfeng Motor Co.

The Changsha county government will provide a 5,000-yuan subsidy for each farmer who wants to buy vehicle. Local rural credit cooperatives will also provide 1 to 2-year loans with interest paid by the provincial government.

"A farmer can get a 70,000 vehicle with a 27,000 yuan down payment," said Pan.

"We will eventually spread the model to all of Changsha city then the rest of Hunan province," said Wen Shuxun, vice-mayor of Changsha.

Changfeng had originally planned to sell 100 units of vehicles during the policies' test period but then sold 131 units in the first ten days.

"The success in Changsha county make it a good example to follow. I've receive phone calls from other counties, such as Liuyang, Wangcheng and Yongzhou, asking when we will take these policies there," said Li Jianxin, board chairman of Changfeng,

Harbin-based Hafei Automobile Group, a company dedicated to producing small cars, aims to build 200 dealerships in counties this year to boost rural sales.

Jilin province, home to China's auto giant FAW Group said in February it would spend 100 million yuan to help stimulate rural auto sales.

The local government promised a 15 percent subsidy to farmers purchasing light trucks, minivans and trucks with carrying capacity under five tons produced in Jilin.

Su Dongliang, a 48-year-old farmer who owns a 3-mu (0.2 hectares) orchard on the outskirts of Jilin city had considered buying a vehicle to transport fruit three years ago but decided against it.

The policies have him rethinking his options.

"Thanks to the subsidy policy, I can spend 26,200 yuan to purchase a FAW Jiabao minivan with an original price of 30,800 yuan, saving 4,600 yuan," says Su.

The policy helped FAW Group sell 1,411 Jiabao minivans this February, a big jump from the 123 it sold in February last year.

In Liuzhou, Guangxi province, a major production base of minivans and light trucks, the favorable policy is driving up sales there.

According to a SAIC-GM-Wuling dealer in Liuzhou city, the policy of halving purchase tax on vehicles with engine capacity of less than 1.6 liters, which took effect on January 20, has cut the cost of mini commercial vehicles by 2,000 to 3,000 yuan.

The government subsidies knocked the price down a further 3,000 yuan.

"We sold about 30 vehicles a day on average in February but we sold 50 on March 1, 70 on March 2 and 80 on March 3," said Qin. "Farmers account for more than 60 percent of those purchases."

The subsidy policies are regulated through an agreement between the auto manufacturers and seven government offices; the Ministry of Finance, the Ministry of Commerce, the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Public Security, the General Administration of Quality Supervision, the Inspection and Quarantine and the State Administration for Industry and Commerce.