Tue, September 14, 2010
Business > Industries

China's old-for-new car scheme gaining momentum on higher discounts

2010-09-14 12:50:24 GMT2010-09-14 20:50:24 (Beijing Time)  Xinhua English

BEIJING, Sept. 14 (Xinhua) -- China's old-for-new car scheme is gaining momentum after the authorities raised the subsidy levels at the start of this year, the Ministry of Commerce (MOC) announced Tuesday .

In the first eight months, a total of 210,000 automobiles were sold under the program, 690 percent up from last year on a monthly basis, the MOC said in a statement on its official website.

The figures have fueled speculation that the trade-in scheme could be extended and the subsidies raised as the government seeks to improve energy efficiency.

Experts attributed the surge to the government's move in January to raise the original subsidy levels ranging from 3,000 yuan (444.7 U.S. dollars) to 6,000 yuan to the current band of 5,000 to 18,000 yuan.

The added subsidy had proved effective as it boosted consumer spending of 25.3 billion yuan on new cars by granting subsidies of 2.95 billion yuan from January to August, said the statement.

In August alone, the government had issued a total of 340 million yuan in subsidies to participants of the program who traded in their old cars and bought 24,000 new ones, up 82 percent from July, said the MOC.

The scheme was rolled out by the MOC and the Ministry of Finance last June as part of the government's efforts to stimulate domestic consumption amid the global downturn and to eliminate energy-wasting vehicles.

However, the program initially got a lukewarm reception from consumers who could generally sell their old cars for more than the value of the government trade-in program, said Luo Lei, deputy secretary general of the China Automobile Dealers Association (CADA).

In the six months after the scheme was initiated, only 12,000 cars were sold under the trade-in program with 100 million yuan in subsidies generating new spending of 1.8 billion yuan.

Even it gained pace, the trade-in scheme fell far short of reaching the pre-set goal of eliminating a million old cars with subsidies of 5 billion yuan, said Luo.

In June, the authorities extended the replacement program from May 31 to Dec. 31, in a move to accelerate the elimination of high-emission and fuel-guzzling vehicles and stimulate domestic consumption.

As the trade-in program becomes more effective, experts expect the authorities to further extend the scheme or introduce similar ones when it expires at the end of this year.

Luo said China still needed subsidy programs, which had contributed to the drive by the government to boost rural and urban consumption to push up overall economic growth.

In recent years, the trade-in offers, along with tax rebates for rural buyers of domestic appliances and tax breaks on fuel-efficient cars, have helped sustain retail sales.

China's retail sales of consumer goods in the first eight months this year hit 9.75 trillion yuan, up 18.2 percent over the same period last year, the National Bureau of Statistics (NBS) said Saturday.

Luo said China also needed such programs to raise the energy efficiency of its economy as it was under pressure to reach its target of improving energy efficiency by 20 percent between 2005 and 2010.

In the first half this year, China's consumption of energy relative to economic output rose by 0.09 percent from the same period last year after it had reduced energy use by 15.6 percent relative to economic output from 2005 to 2009.

The subsidy levels might be raised further as they were still lower than those in the United States or the European Union where consumers could get a discount of about 3,800 U.S. dollars if they traded in their old cars, Luo said.

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