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China's New Measures to Spur Car Sales Fall Short of Expectations

China is planning to increase the number of newly issued car licenses in major cities including Beijing, Shanghai, and Guangzhou by 50 percent this year from 2018 levels.

Reuters
    Jun 06, 2019 5:00 PM  PT
China's New Measures to Spur Car Sales Fall Short of Expectations

BEIJING (Reuters) - China announced a series of measures on Thursday to revive slumping car sales but failed to meet market expectations as it included no plans to relax controls over the issuance of new licenses for traditional-fuel cars in major cities.

Beijing has been trying to boost consumption of goods ranging from eco-friendly appliances to big-ticket items such as cars to fire up growth, as the world's second-largest economy is expected to slow further in 2019 amid a bruising trade spat with the United States.

Auto industry executives have expected China's car market, the world's biggest, would return to growth this year thanks to government support after sales contracted for the first time last year since the 1990s.

The National Development and Reform Commission (NDRC), China's state planner, said in a statement it is stopping local governments from imposing new restrictions on car purchases and canceling existing ones that apply to new energy vehicles.

The measures, which apply to 2019-2020, include support to encourage car purchases in rural areas. The NDRC statement also called for more local governments to allow pickup trucks to enter their cities.

Financial magazine Caixin, citing an NDRC document, reported in April that China is planning to increase the number of newly issued car licenses in major cities including Beijing, Shanghai, and Guangzhou by 50 percent this year from 2018 levels, and double that next year.

The NDRC, however, did not mention such steps on Thursday.

"The (April) draft was quite strong so I am quite disappointed about the policies," said an industry association official who declined to be named as she was not permitted to speak to the media.

Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, said the document would likely support some new energy vehicle sales, but would not have a big impact on combustion engine cars.

"Now the question comes to whether local governments are willing to support auto sales."

Breaking Market Barriers

Vehicle sales in China fell 14.6 percent in April from the same month a year earlier, marking the 10th consecutive month of decline.

Automakers have been lowering prices after the government introduced tax cuts to spur consumer spending, but customers are holding off purchases in the hope of more favorable policies.

"This document has positive impact on the industry in the long term, but will not boost sales very quickly," said the industry association official.

Yet, the measures, which were unveiled after mainland markets shut, helped boost shares of Hong Kong-listed automakers. Shares in Geely Automobile Holdings rose by more than 3% after the announcement, while BYD Co Ltd climbed as much as 5.2 percent.

Some local governments had already started to offer supportive policies in the run-up to NDRC's announcement. 

Authorities in the big southern Chinese cities of Guangzhou and Shenzhen said that they will increase quotas for new car registrations from this month till the end of next year which will allow at least 180,000 more car sales.

The NDRC said the new moves "strive to break the market barriers that restrict consumption and protect consumers' legitimate interests."

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