China Should Refrain From Short-Term Auto Stimulus, Adviser Says

  • Former NDRC official says short-term stimulus distorts demand
  • Boosting rural purchases is better option, Chen Bin says

China should refrain from using short-term policies such as last year’s purchase tax cut to stimulate auto sales because it may result in overly fast expansion and increase the risks of a steep downturn once they expire, according to a former top government bureaucrat.

The government should instead consider longer-term measures, such as through car-buying subsidies for rural residents to replace old, polluting vehicles, Chen Bin, who helped oversee the auto sector as head of the top policy making National Development and Reform Commission’s industry department until 2014, said in an interview in Beijing.

“Policies should firstly ensure the healthy development of the auto industry,”
said Chen, who’s now an executive vice chairman at the state-backed advisory trade body China Machinery Industry Federation. “Only by doing can the industry act as a tool that benefits economic growth.”

Chen’s comments come as automakers including Ford Motor Co. count down on a tax cut that expires at the end of this year. The levy reduction helped revive passenger-vehicle demand, which had fallen for five straight months amid a stock-market rout and slowing economic growth. Auto industry sales have expanded by an average annual rate of 6.5 percent during the past five years and contributes more than a 10th of China’s gross domestic product, tax income and employment, according to Sanford C. Bernstein & Co.

China cut the purchase tax to 5 percent from 10 percent on vehicles with engines 1.6 liters or smaller to 5 percent. The directive also forbade local governments from restricting the purchase and operation of electric vehicles, and reiterated support for promoting new-energy vehicles and battery development.

The government has so far not given any indication whether it will extend the tax cut beyond December.

Ford Chief Executive Officer Mark Fields said on April 23 that the health of the economy and stability of financial markets may factor into the Chinese government’s decision whether to extend the tax cut.

— With assistance by Tian Ying

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