Manufacturing News

China's plan to boost vehicle sales draws criticism

China's government on Tuesday announced measures to spur vehicle sales after the first decline in almost three decades last year. But observers criticized the policies, saying they expect the effect on sales to be "limited."

The National Development and Reform Commission and nine other ministries announced that local governments can provide subsidies to rural residents to buy some kinds of trucks and cars if "conditions permitted."

The measures also include replacing old cars, optimizing new-energy vehicles and allowing pickups in more regions.

The policies, which are vague and subject to approval by the local governments, will disappoint investors, according to analysts including Robin Zhu at Sanford C. Bernstein.

“Does this mean the central government does not plan to open its wallet?" Zhu wrote in a research note Tuesday. “We expect a limited impact on auto sales.”

Any step to get Chinese consumers back into showrooms would be welcomed by carmakers such as Volkswagen Group and General Motors that have increasingly relied on the Asian country for growth, while U.S. and European markets near saturation.

Investors have eagerly awaited measures from the government to stimulate the market after vehicle purchases slowed in the world’s second-biggest economy amid a trade war, weakening currency and declining stock market.

“China is under threat, for sure,” VW Group CEO Herbert Diess said last week in a Bloomberg TV interview in Davos, Switzerland. “This year will be challenging.”

Car manufacturing, which accounts for 7.4 percent of China’s industry output and 2.5 percent of gross domestic production, according to former Minister of Industry and Information Technology Li Yizhong, has been a growth engine for China for much of the past three decades.

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