Economy, Auto

China Cuts Auto Taxes, Sales Boom

China Cuts Auto Taxes, Sales BoomChina Cuts Auto Taxes, Sales Boom

China’s auto manufacturers got a big boost after the government slashed the purchase tax on small cars by half to 5% last week.

The tax break is applicable to cars with engine displacement of 1.6 liters or less and effective from October 2015 till the end of 2016. The small car segment accounted for about 70% of sales in the first-half this year and continues to be the main driver of sales even during the turndown.

Geely, Changan and Great Wall Motors have the highest exposure to this segment. Hong Kong Shanghai Bank Corporation estimates Geely has 83% sales volume exposure, followed by Great Wall Motor’s 80% and Changan’s 79%, according to Barron's.

As a result, in two trading days in China and Hong Kong, Great Wall Motor jumped 30%, Geely rose 21%. Changan, which is listed on Shanghai Stock Exchange, went up 10% on September 30.

The Shanghai market has been closed since October 1 for the October Golden Week holiday.

Even the auto websites benefited. Bitauto jumped 12.8% in New York on Friday and Autohome gained 6.7%.

Beijing has done it before. Back in 2009, it implemented a similar tax cut, bringing sales growth from negative territory in the fourth-quarter of 2008 to over 50% growth rate in 2009. Iran can learn from China's methods by doing a similar trick to its auto market. However, it would require the clarification from authorities due to the public interest being large in both large automakers.