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Subsidy moves to drive uptake

By Jiang Wei (China Daily)
Updated: 2009-05-20 08:12

China pledged to expand current subsidies to encourage consumers to upgrade vehicles and home appliances, in the latest step to boost domestic consumption.

A total of 5 billion yuan ($732.65 million) has been allocated to help people upgrade their vehicles, up from the original budget of 1 billion yuan, the State Council, or the Cabinet, said yesterday in a statement. It said owners of light trucks and passenger vans would get a subsidy from the government if they scrap the used vehicles ahead of schedule and buy new models.

"The move is expected to spur consumption, improve energy efficiency as well as reduce pollution," the State Council said.

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The policy is a detailed part of the country's stimulus package for the automobile industry, said Li Chunbo, an analyst with CITIC Securities. "It encourages sales of new vehicles and boosts environmental protection at the same time."

But Li estimated the impact of the new policy might be limited for the industry because China's possession rate of vehicles is much lower than those in developed countries.

Hui Yumei, an analyst with automobile market research company Sinotrust, said the effect of the new policy depends on detailed rules for the replacement.

She cited a previous policy to encourage farmers to replace farm vehicles with light trucks, saying the effect of that was not "as beneficial for farmers as expected" because the coverage is strictly limited to used farm vehicles.

"People who do not have a farm vehicle or want to keep the current vehicle could not benefit from it," she said. "So, details of the new policy, such as what kind of cars could be replaced, are very important."

China announced a nationwide subsidy program for the purchase of cars in January, expecting to boost domestic consumption and help the car industry weather the financial crisis.

At the same time, the State Council set several provinces and cities, including Beijing, Shanghai, Jiangsu and Guangdong, as pilots for the replacement of used TV sets, refrigerators, washing machines, air conditioners and computers. Consumers who hand in used electronic products and buy new ones can get a subsidy up to 10 percent of new electronic products.

The government will also set aside 2 billion yuan to subsidize purchases of home appliances.