Analysts believe the new tax could be an effective way of reviving China's auto market. It should also benefit the manufacturers of smaller cars.

Many potential car owners in China had put off buying a new car until the new tax cut had been passed. Previously, the purchase tax on cars was 10 percent, regardless of engine size. But the tax reduction has forced many drivers to consider buying smaller vehicles.

A car buyer says, "the tax cut helps me save a lot. It's definitely a good thing."

In some cases, drivers planning to buy a 120,000 yuan car can save at least 6,000 yuan under the new taxation scheme.

Zhang Chao of Zhonglian Automobile Service says, "many people have been saving for quite a while. But now the tax cut has made many clients switch to smaller cars, and make their purchases ahead of their planned schedule."

The China Machinery Industry Federation, or CMIF, says the new tax scheme is sure to boost sales of compact vehicles. The CMIF believes there is still room for expansion in China's small car sector, since low-emission cars only account for 30 percent of the country's total market share.

(CCTV January 16, 2009)