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Price Cuts Fail to Lift Market Slump
China's car market remains in the doldrums despite recent price cuts by car makers.
About 168,630 units were sold nationwide during the first four months the year, an increase of only 2.66 per cent from the same period last year, said sources with the State Administration of Machine-Building Industry.
Car makers did several things to promote their sales and to claim bigger market shares
Shanghai Volkswagen Co Ltd and FAW (First Automotive Work) Volkswagen Co Ltd donated computers and car interior decorations to consumers who bought Santana and Jetta cars.
Tianjin Automotive Industry Corp and Shanghai General Motors Co Ltd directly slashed their Xiali and Buick cars by more than 3,000 yuan (US$361.45) and 20,000 yuan (US$2,409.64).
But their unilateral promotional efforts were frustrated by sluggish demand.
With an expectation that car prices will slide after the country's accession to the World Trade Organization (WTO), many consumers still balk at buying now.
After the country joins the WTO, it will cut tariffs from the current 80 per cent to 100 per cent level to 25 per cent by mid-2006, forcing down the prices of domestic-made cars.
Customers also appear to be waiting to buy higher quality imported cars at lower prices.
However, car prices are not expected to change remarkably within the first two to three years after the WTO accession and any price cuts are expected to be gradual, sources said.
"An unfavourable car consumption environment is another very important factor dampening the demand for cars," said Zhang Mingjie, an analyst with the Automotive Industry Institute of the administrations.
Central and local government still assess car consumers arbitrary fees, accounting for 15 per cent to 40 per cent of car prices.
Car makers are levied a 7 per cent consumption tax, left over from the planned economy era when vehicles were seen as production material. This jacks up car prices.
About 16 domestic car makers, including FAW and Shanghai Automotive Industry Corp, recently made a proposal to the government to cut the consumption tax by half this year and cancel it by 2001.
They also proposed that the government remove arbitrary fees imposed on car consumers.
There are indications that the central government will heed their proposals.
The State Development Planning Commission and the administration are reportedly creating a new vehicle consumption policy, which will reduce fees and taxes on consumers greatly to stimulate consumption.
"The government's increasingly strict vehicle emissions regulations are also slowing car consumption,"said Que Xiaogang, a manager of the Beijing Asian Games Village Automobile Exchange.
The Beijing municipal government, for example, bans sales of all vehicles which cannot meet its emission regulations.
The Chinese Government requires that all vehicles meet European I emissions standards by the end of this year.
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