Industry analysts said the government incentives for the automotive industry will not be strong enough to turn the sagging vehicle market round this year though they were welcomed by car makers.

Shares of major Chinese car makers rose yesterday after the central government announced a stimulus plan to spur vehicle demand and promote new-energy cars.

The sales tax for cars with an engine capacity of 1.6 liters and below will be halved to 5 percent this year and farmers who replace their three-wheelers and trucks with light commercial vehicles will be subsidized as part of a revival plan to expand vehicle consumption.

"We estimate the new tax will save consumers between 2,000 yuan (US$292) and 5,000 yuan when they buy a small car," said Wang Mingcun, analyst from TX Investment Consulting Co.

"Market confidence will be boosted as cars with engine sizes below 1.6 liters made up 60 percent of the total vehicle sales last year."

Analyst Wang Liusheng from China Merchants Securities Co Ltd agreed that sales of small cars would pick up as budget-minded consumers will favor the cheaper models in this highly competitive market segment.

However, most industrial analysts remained skeptical about an overall market rebound this year as the long-awaited government plans failed to meet expectations.

Earlier proposals submitted to the State Council included the scrapping of the 10 percent sales purchase tax as well as favorable car loans and government procurements for Chinese-brand vehicles.

"Generally speaking, a 4.3 percent saving on the price of those small passenger cars is not a big deal," said Wang Zhihui, an auto analyst from China International Capital Co Ltd.

"The revival plan will not be able to fundamentally change the downward sentiment for the auto industry," he noted.

CICC predicted a 3.6 percent sales decline for the Chinese auto market this year. Haitong Securities also estimated vehicle sales for the first half of this year would continue to fall.

(Shanghai Daily January 16, 2009)