China tries to boost auto industry
World's third-largest economy to cut taxes, offer subsidies and promote steel industry consolidation to counter slowing economic growth.
BEIJING (Reuters) -- China unveiled a wide-ranging plan on Wednesday including tax cuts and subsidies to boost its auto industry, one of the pillars of the world's third-largest economy.
China said it would also promote consolidation in the steel industry, which has seen a glut of capacity as worldwide steel prices have fallen.
Together, the government hopes these measures will counter the impact of slowing global growth, which has seen China's once red-hot export growth turn negative and factories slash output and jobs.
The State Council, China's cabinet, said it would cut in half, to 5%, the sales tax on purchases of cars with engine sizes below 1.6 liters. That rate will take effect on Jan. 20 and run until the end of 2009.
The government will also give one-off cash subsidies totaling 5 billion yuan ($732 million) to owners of high-emission vehicles who trade them in for more fuel-efficient and cleaner ones, it said.
"To speed up the consolidation and revival of the auto industry, China must implement an active policy to boost consumption," the State Council said in a statement published on the central government's web site.
The auto sector has been hit hard by waning consumer confidence, with growth in sales of passenger cars slowing to 7.3% in 2008, the first year of single-digit growth in more than a decade.
The State Council said that, in addition to helping the sector in the short run, it aimed to enhance its global competitiveness in the long run by encouraging firms to develop their own brands and establishing export-oriented production bases for automobiles and parts.
It will also set up a 10 billion yuan fund to promote new technology, including renewable energy, over the next three years, while supporting the eventual mass production of electric vehicles.
The steps come against the backdrop of efforts by other countries to rescue battered auto makers, including a $17.4 billion U.S. federal bailout of General Motors Corp (GM, Fortune 500). and Chrysler.
Beijing has long said it aims for better consolidation of sectors, like the auto industry, that face overcapacity problems. Chinese automakers include SAIC, Changan Automobile Co. and Geely Automobile Holdings Ltd.
That task has taken on greater urgency as the government seeks to maintain economic growth at 8% in 2009, the pace seen as necessary to create enough new jobs to ward off social unrest, but one economists say will be tough to reach.
The government has said previously it plans to help other industries as well, as part of its broad efforts to aid the economy, meaning more aid for sectors from shipping to textiles could be on the way. 
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