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China's Vehicle Prices May Decline Steadily in Second Half, Agency Says

China’s vehicle prices may decline steadily in the second half of 2010 because of increasing inventories and pressure by wholesalers to meet sales targets, the country’s planning ministry said.

Automakers may join dealers in offering discounts in the fourth quarter, Cheng Xiaodong, an official with the National Development and Reform Commission, said today in a statement. China’s car prices fell 1.18 percent in the first half from a year earlier, according to the agency.

Demand in the world’s biggest auto market may fall from year-earlier levels in the last six months of 2010, sparking price wars as dealers compete to clear inventories, according to Credit Suisse Group AG and consultant IHS Automotive. Wholesale passenger-car deliveries last month rose at the slowest pace in 15 months as inflation eroded consumers’ buying power.

“The high prices we saw last year are long gone,” said Yu Bing, an analyst at PingAn Securities Co. in Shanghai, who expects a 5 percent price drop for vehicles that cost about 100,000 yuan ($14,750). “Car prices are no doubt coming down.”

China’s vehicle sales, which have risen every month since February 2009, began growing at a slower rate in April amid increasing prices for consumer goods and signs of a cooling economy.

Sales Tax

The government also boosted the sales tax on small cars to 7.5 percent this year, after cutting it in half to 5 percent in 2009 as part of economic stimulus measures. The tax cut helped last year’s vehicle sales jump 46 percent to 13.6 million, surpassing the U.S. for the first time.

Wholesale passenger-car sales in June rose 19 percent from a year earlier, the slowest pace since March 2009, as China’s inflation rate stood at 2.9 percent, the second-highest monthly rate this year. The nation’s gross domestic product expansion eased to 10.3 percent in the second quarter from 11.9 percent in the preceding three months, the statistics bureau said on July 15.

Domestic auto production exceeded sales by 1.29 million vehicles in the first half of this year, the China Automotive Technology & Research Center said on July 5. The average stockpile period, a measure of the time between car production and registration, was 55 days in June, compared with 41 days in February, the center said.

New Models

Automakers are introducing new models at a faster pace in the second half, with an average of three being added every week in July and more than 20 scheduled to come in the next two months, the Development and Reform Commission said today.

Price reductions of as much as 5 percent on average are likely, according to Yale Zhang, a Shanghai-based analyst at consultant IHS Automotive.

The Chinese government has been subsidizing rural residents’ automobile purchases since last year. The country gave out 7.92 billion yuan to rural residents to help them buy motorcycles and automobiles in the first half, according to the planning agency.

The government also handed out 2.44 billion yuan to subsidize trade-ins of old vehicles during the period, the agency said.

--Tian Ying in Beijing. Editors: Terje Langeland, Ian Rowley.

To contact the reporter on this story: Ying Tian in Beijing at ytian@bloomberg.net

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