Coronavirus: Beijing cuts tax by 60 billion yuan to spur vehicle sales as ‘China’s Motown’ sits idle amid Covid-19 lockdown

China will slash car purchase tax to the tune of 60 billion yuan, 42 per cent of the 140 billion yuan of rebates, loans, and deferred payments outlined by the State Council

The cut, likely to halve the current tax from 10 per cent to 5 per cent according to consensus forecasts, may stimulate demand by 1.8 million vehicles, analysts said

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Vehicles awaiting exports next to stacks of containers by Ocean Network Express (ONE) in Shanghai on Monday, April 30, 2018. Photo: Bloomberg.

Published: 7:30pm, 24 May 2022Updated: 10:04pm, 24 May 2022

China’s government will earmark a major portion of its Covid-19 economic stimulus plan towards spurring demand in the world’s largest vehicle market, extending a helping hand to an industry that accounted for one in six urban jobs.

The government will slash a car purchase tax to the tune of 60 billion yuan, about 42 per cent of the 140 billion yuan (US$21 billion) of tax rebates, loans, and deferred payments outlined by the State Council after its Monday meeting.

The cut, likely to halve the current tax from 10 per cent to 5 per cent according to consensus forecasts, may stimulate demand, leading to sales of an additional 1.8 million vehicles, analysts said. The State Council did not elaborate on its tax cut.

“The automotive sector is at a critical stage when government support is needed to stimulate sales,” said Chen Jinzhu, the chief executive of Shanghai Mingliang Auto Service, a consultancy. “Lockdown measures to contain the Covid-19 outbreak have crippled the vital industry, affecting millions of jobs.”

China has been the largest vehicle market on the planet since 2009 when it overtook the United States. Every global carmaker of note has a production venture somewhere in China, and the country is where Tesla chose to establish its first offshore assembly.

The industry took a deep dive last month, as Shanghai – dubbed China’s Motown for its 11 per cent contribution to the nation’s 2021 output – went into a citywide lockdown, which idled car plants from General Motors to Tesla and Volkswagen. Disruptions at component producers and engine makers idled car factories in Japan, South Korea and Europe.