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China's auto and steel industry gets government stimulus news
15 January 2009

China, the world's third largest economy gave its auto and steel industry a boost when it unveiled a wide range of stimulus package to cope with the global financial turmoil that has put the brakes on its fast growing economy.

China, having the world's second-largest car market, recorded the slowest growth in the auto industry in 10 years, against sales and production targets of 10 million units as vehicle sales slowed to 6.7 per cent in 2008 after a continuous double-digit growth in the past five years. (See: China's auto sales post slowest growth in a decade)

The State Council came out with a stimulus package to the auto industry yesterday where the government will reduce the sales tax from the present 10 per cent to 5 per cent on cars that engines are less than 1.6 litres from 20 January to 31 December 2009.

The government will increase the subsidy to people who are willing to trade off their old polluting and gas guzzling cars to newer fuel efficient and low emission cars.

Under a $730-million package, farmers will get a one-time allowance to either upgrade their three-wheeled vehicles and low-speed trucks to mini-trucks or buy new mini-vans with engines less than 1.3 litres and the scheme is open from 1 March to the end of the year.

With 9.38 million vehicles being sold in the country last year, more than 93 per cent were sold in the domestic market but less than 10 per cent people bought their vehicle through credit and now the government will reform the credit system for car purchases so as to make more people avail of loans to buy cars in order to boost sales.

In order to encourage the auto industry to mass produce electric cars for consumption in big and medium cities, the government will make available $1.5 billion to Chinese auto makers to upgrade their technology to develop alternative energy saving vehicles.

This auto stimulus package, according to the Chinese government will not only benefit the auto industry but also help the steel industry through orders from the car manufacturers for steel.

The Chinese government's long-term aim for the auto industry is that manufacturers develop their own brand of vehicles and build export-based production facilities for cars and parts so as to compete in the global market.

With an estimated 500 million tons of steel output, China is the world's largest steel producer, but due to the global financial meltdown, demand for steel both in the domestic and foreign sector, has nosedived.

The government said it would restrict new capacity in the steel sector and close down old mills with outdated technology.

It will adopt a 'flexible tax policy' on the exports of steel in order to stabilise China's share of the global market and encourage the restructuring in the steel industry and encourage forming steel groups to bid competitively overseas.

The government will set up special funds to upgrade its technology, invest in research and innovations and renegotiate contracts for imports of iron ore, whose prices have fallen in the international spot market.

After stimulating the auto and steel sector, the Chinese government is coming with plans to bail out the textile, shipbuilding and other key industries.

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China's auto and steel industry gets government stimulus