Chinese Auto and Steel Industry Gets Government Stimulus

According to news sources, despite the fact that China has the world’s second largest car market, in the last year the auto industry recorded its slowest growth in a decade. Beginning January 20th and extending through until December 31, 2009, a stimulus package issued by the State Council offers a reduction in sales tax from the present 10 percent to 5 per cent on cars whose engines are less than 1.6 litres.

The government will increase the subsidy to people who are willing to trade in their older, polluting, gas-guzzlers for newer, fuel-efficient and lower emission autos. Under a $730-million package beginning March 1 and extending until the end of the year, farmers will get a one-time allowance that will permit them 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.

The government is also determined to reform China’s credit system as it relates to the purchase of cars. This comes in the wake of the fact that although 9.38 million vehicles were sold throughout China last year, more than 93 percent were sold in the domestic market but less than 10 per cent of buyers bought their vehicle through credit. The government hopes that with this new plan, more people will avail themselves of loans to buy cars.

In the name of innovation and in order to encourage the mass production of electric cars for consumption in big and medium cities, the government will make $1.5 billion available to Chinese auto makers to be used exclusively to upgrade their technology to develop alternative energy saving vehicles. It is expected that this auto stimulus package will not only benefit the auto industry, but will also help the steel industry.

In order to keep pace with the global market, the Chinese government is hoping that auto manufacturers will eventually develop their own brand of vehicles and significant export-based production facilities for cars and parts. Currently, China produces 500 million tons of steel, making it the world’s largest steel producer, but the demand for steel in both domestic and foreign sectors has declined drastically due to the global financial crisis.

The steel, textile, shipbuilding and other key industries are next on the list, if that is, the money doesn’t run out. It doesn’t look like it will.

Maybe they have enough to spare to help the US auto industry?

Time and many more automobiles will tell.