China's Local Governments Plan to Subsidize Rural Auto Purchases

  • Previous subsidy program for rural buyers said to end in 2010
  • Incentives to be combined with purchase tax cut in October

Six Chinese provinces with a combined population exceeding the U.S. are among regions preparing to introduce subsidies for light-truck purchases, paving the way for an additional round of stimulus after a nationwide tax cut for auto purchases.

The local governments of Henan, Guangdong, Hebei, Qinghai, Guizhou and Jiangxi have included purchase subsidies in their work plans this year, according to published documents reviewed by Bloomberg News. The annual plans lay out policy priorities for the individual regions, which are mostly rural.

The incentives are part of national objectives to boost economic growth, safeguard employment and stimulate consumption. More provinces may follow suit in rolling out similar policies, said Cui Dongshu, secretary general of the China Passenger Car Association. Wholesales of light trucks, including pickups, have fallen in five consecutive years, with deliveries declining by one-fifth from 2011, according to the trade body.

“Helping rural residents buy light trucks is a very targeted and effective measure to boost production and consumption,” Cui said. “Local government can go ahead with it using their own capital even if there’s no matching funds from the central government.”

Zhonghang Heibao Co., a maker of small trucks and vans for farm use, gained as much as 4.5 percent in Shanghai as of 1.53 p.m. Shenyang Jinbei Automotive Co., a light truck manufacturer, advanced as much as 1.3 percent. The benchmark Shanghai Composite Index fell 0.6 percent.

Bloomberg News first reported China’s plans to introduce a new round of subsidies for auto purchases covering mini-commercial vehicles and light pickup trucks in December.

China last introduced rural auto purchase subsidies in 2009 during the global financial crisis to prop up economic growth, helping propel the nation past the U.S. to become the largest auto market in the world. New incentives would add to the government response to automaker lobbying for support last year during a sales slowdown. The government cut by half the purchase tax on passenger vehicles with smaller engines starting in October.

Policy makers are grappling with growth that slowed to the lowest rate in 25 years in 2015 as China seeks to boost consumption and services and shift from an investment-driven economy. Premier Li Keqiang has set a goal for 6.5 percent to 7 percent expansion in 2016, compared with an objective for about 7 percent last year.

— With assistance by Tian Ying, and Steven Yang

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