China's Carbon Neutrality Fades... Subsidies Also Given for Internal Combustion Engine Vehicles

China Lowers Car Purchase Tax and Provides Subsidies to Boost Economy
Tax Cuts Expected to Drive Sales of Gasoline Cars Under 1600cc to 17.26 Million Units This Year

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China is easing automobile license plate regulations as part of its economic stimulus measures. Additionally, it plans to support subsidies such as purchase tax (acquisition tax) reductions to revive the sluggish domestic market.

[Image source=AP Yonhap News]

However, the inclusion of internal combustion engine vehicles such as gasoline cars in the recent purchase tax reduction has drawn criticism for undermining carbon neutrality policies. Furthermore, it remains uncertain whether visible effects will emerge under the 'Zero (0) COVID policy' amid the resurgence of COVID-19.

According to Chinese media including Shanghai Securities News on the 27th, the Guangdong Province Shenzhen National Development and Reform Commission (NDRC) will provide subsidies of up to 10,000 yuan (approximately 1.86 million KRW) to buyers of electric vehicles (including hybrids) until the end of August.

The Shenzhen NDRC will also allocate an additional 20,000 automobile license plates. Since 1994, China has restricted license plate issuance in first- and second-tier cities to prevent air pollution.

This measure follows the State Council's announcement to gradually reduce purchase taxes on automobiles by 60 billion yuan (about 11.2 trillion KRW) to stimulate domestic demand, and similar policies are expected to be implemented nationwide starting with Shenzhen.

The inclusion of internal combustion engine vehicles in this sales stimulus has sparked criticism that carbon neutrality policies are being rolled back. This also reflects the urgency of the Chinese economy.

In fact, Hubei Province offers subsidies of 8,000 yuan per vehicle for purchasing new energy vehicles after scrapping old cars, and 3,000 yuan for fuel vehicles. Shandong Province plans to provide discount coupons of up to 6,000 yuan for new energy vehicle purchases and up to 5,000 yuan for fuel vehicle purchases.

China Industrial Securities estimates that the purchase tax reduction will increase sales of fuel vehicles with engines 1.6 liters (1600cc) or smaller by 4% year-on-year, reaching 17.26 million units.

The Chinese automobile industry expresses optimism about the 60 billion yuan purchase tax support, expecting it to cover 12 million vehicles, which is 50% of China's annual automobile sales.

Chui Dongsu, Secretary-General of the China Passenger Car Association, stated, "First-tier major cities such as Beijing, Shanghai, and Guangzhou will soon announce automobile industry stimulus measures."

Professor Jang Xiang of Northern Industrial University said, "China's automobile production will normalize from June," adding, "Losses from decreased automobile sales due to lockdowns in April and May will be fully recovered in the second half of the year."

Meanwhile, due to lockdowns in major cities including Shanghai, China's automobile production and sales in April were 1.295 million and 1.181 million units respectively, down 46.1% and 47.6% year-on-year. The monthly automobile sales volume falling below 1.2 million units is the first occurrence in the past 10 years.