Xiali Responds in Prices War

Domestic car manufacturers have escalated a price war in the mainland car market with the announcement of new price cuts.

Tianjin Xiali Automobile slashed the price of two of its Xiali models by about 8,000 yuan (HK$7,495) on Saturday.

The First Automotive Works Volkswagen Automobile (FAW-VW) cut the price of its Jetta model by 12,000 yuan last week in Chengdu.

The price cuts were aimed at cutting the number of stored cars and expanding market share, Jia Xinguang, a senior analyst with the China National Automobile Industry Development and Consulting, said. The price cuts are good news for mainland consumers eager for mobility, though most of them expect prices to fall still further after the mainland enters the World Trade Organization.

The mainland will cut its tariffs on car imports to 25 per cent by mid-2006 from the present 80 per cent to 100 per cent level.

The biggest cuts are expected in the first two years after WTO accession, which is expected at the end of this year or the beginning of the next.

The domestic car market has seen about 15 price cuts among all brands this year, but the industry remains in the doldrums.

The mainland's purring economy helped most car firms post strong interim earnings despite a fresh round of price cutting in the fiercely competitive and overcrowded industry, analysts said on August 29. But share prices failed to motor ahead at the same pace due to concerns over increased competition as the country prepares for entry to the WTO.

"The recovering economy is pushing up institutional demand for sedans," said Zhang Kai, an industry analyst at China Securities in Beijing.

"But competition for market share is growing, exerting pressure on some large producers."

The mainland's gross domestic product rose 8.2 per cent year on year in the first half of this year and analysts said full-year GDP growth would outpace the 7.1 per cent recorded last year. The mainland's economic growth has slowed each year since 1994.

The turnaround helped boost sales. China Automotive Industry Association figures show first-half mainland car sales rose a year on year 4.8 per cent to 272,000.



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