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New guidelines keep Chinese cars on road
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14:37, January 29, 2009

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In a freezing mid-winter gale, sales manager Li Hao is working overtime to handle loads of order sat Tengyuan Auto Selling Company off Beijing's Fourth Ring Road.

"Many customers are anxiously waiting to drive a new car back home before the Spring Festival, so I've to make it so, around-the-clock," he says, wiping the sweat off his face.

Like Li, the Chinese auto sellers, buyers and producers have seen a sign of hope in the Chinese government's new stimulus policies for the auto industry.


Of his four years at Tengyuan, 2008 was the worst for sales, says Li .

In 2006 and 2007, the company was able to sell each day at least 10 small cars produced by Cherry Automobile, a manufacturer based in east China's underdeveloped Anhui Province.

It was a golden time for Tengyuan and 17 other 4S (sales, spareparts, services and surveys) auto shops at the 150,000-square-meter Dongfangjiye International Automobile Complex.

Tengyuan's sales record kept pace with China's surging demand for cars. In big cities like Beijing or Chengdu, following the American way of life and owning a car has become an attainable goal for the quickly rising middle or upper classes, as evidenced by the 20-plus auto markets sprouting throughout Beijing in the past decade.

But fortunes changed dramatically in 2008, and Li found daily sales dropped to just four units, especially during and after the Beijing Olympic Games.

"People just walked in and glanced around, but very few took out their wallets." The specialist employed his social skills built over the years to break the ice, but to no substantial effect. Chinese buyers' confidence was ebbing with the receding stock and real estate markets.

Tengyuan had no way but to cut the prices: a Cherry-developed Qiyun (Flag Cloud) was reduced from 59,800 yuan to 55,800 yuan. "Sales always stand as the primary indicator, regardless of shrinking profits, " Li says.

After months of anguish for Li and his staff, the State Council unveiled a relief package of guidelines for the auto sector in mid-January.

Under the plan, which forms part of the national 4-trillion-yuan budget to boost the economy, the government will lower the purchase tax on cars under 1.6 liters from 10 percent to5 percent.

Li says the policy, which went into effect on Jan. 20, has seen sales bounce back to 10 vehicles daily, and even farmers from Beijing's outskirts are looking to buy a New Year's gift.

Li Jingsheng, director of China Institute of Auto Economic and Technical Affairs, believes the policy will drive domestic demand and help China emerge from the global financial crisis.

The emphasis on small cars is also welcomed. "In recent years, we have witnessed a rapid growth trend in the larger and luxury car sectors and SUVs and MPVs, which are not good in terms of energy saving. This is a good opportunity to reverse such trends," says An Feng, an expert on sustainable transport at the Innovation Center for Energy and Transportation (iCET), a non-governmental organization dedicated to promoting clean and energy efficient vehicles and fuels in China.

Jiang Lin, who works at Beijing-based magazine Outlook China, is an immediate beneficiary of the policy.

"My boyfriend and I have decided to buy a Mazda 3 for 139, 800 yuan, and we can save up to 7,000 yuan with the tax cut," she says, pointing to a red car in an exhibition hall of Dongfangjiye.

Breaking from past practice, the policy targets not only urban inhabitants, but also those in the countryside. It allocates 5 billion yuan for one-off allowances to farmers to upgrade their three-wheeled vehicles and low-speed trucks to mini-trucks or purchase new mini-vans under 1.3 liters.

Experts believe it is a sensible decision. "These vehicles are usually very polluting and energy inefficient. Getting rid of these vehicles achieves the benefits of stimulating new sales, and saving energy and reducing air pollution," says An.  


Apart from the incentives for general customers, the policy also sends encouraging signals to the manufacturing industry.

According to the plan, the central government will earmark 10 billion yuan as a special fund to help auto companies upgrade technologies, and develop new engines that use alternative energies. It will also offer financial support to promote the use of energy-saving autos and those fueled by new energies, and support automakers to develop independent brands.

An says the policy should be viewed as an opportunity to "jump-start greener, more energy-efficient vehicle manufacturing" in China, instead of "simply bailing out the auto industry as it was in the past".

China is the world's second biggest carmaker. In 2007, China exported more than 500,000 cars, and manufacturers rolled out 9.34million vehicles in 2008, up 5.21 percent from the previous year.

However, the car industry in China has major problems. The 2006J.D. Power and Associates Chinese Initial Quality Study shows that Chinese domestic auto manufacturers averaged 368 problems per 100 vehicles, nearly three times the world average.

The Chinese auto industry also lacks self-owned core competitive technologies. However, some local Chinese companies have embarked on technological innovation research, pre-empting the new policies.

One of the pioneers is Shenzhen-based BYD Company. Last year, the company, originally a battery producer, unfolded an electric-powered car following its gasoline-electric hybrid F6DM, which can be plugged into a home electrical outlet and is capable of running 100 kilometers all on electric when fully charged.

BYD chairman Wang Chuanfu said last November that the two electrified vehicles would usher in "the era of Electronic Vehicle(EV)". Echoing his words, Minister of Science and Technology Wan Gang envisions 10 percent of vehicles to be using energy-saving and new-energy technologies by 2012.

But the policy's aim of shifting consumer and enterprise preference to smaller and more energy-efficient vehicles will definitely take years to attain. For one thing, they are unaffordable for most Chinese. BYD plans to sell the plug-in hybrid for 150,000 yuan and the electric car for 200,000 yuan.

A more severe challenge is "whether these smaller firms can survive long enough to see the new generation vehicles widely accepted", warns An.

Li, at Tengyuan, also voices uncertainty over the long-term effects of the policy. "It's hard to predict the market performance after the Spring Festival. You know, demand was greatly released before the holiday," he says. "How do I pitch to the next bunch of customers?"

Source: Xinhua

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