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Stimulus policies fine tuned to drive sales in rural areas

In order to drive vehicle sales in China’s rural areas, the government has allocated ¥5 billion ($735 million) in subsidies for rural residents in their purchase of light and mini trucks and microvans powered by a 1.3L engine or smaller.

But such subsidies had one condition until most recently: rural residents must scrap their three-wheelers or low-speed diesel trucks in order to take advantage of the subsidies for purchasing a new vehicle.

As the “cash for three-wheelers or low-speed trucks” is too little and most rural residents cannot afford a light truck or a microvan, such an incentive did not work. The chairman of the country’s leading farm truck manufacturer, Wuzheng Group, complained earlier last month that the subsidy program in the rural areas “did not work.”

But the government is quick in making a timely adjustment on the subsidy program by removing the “cash for three-wheelers and low-speed trucks” requirement. “The central government has recently decided to offer direct subsidies, between ¥4,000-¥5,000, to any rural resident who buys a light truck, a mini truck, a microvan or even a motorcycle,” according to Xu Changming, Director of Information Resources at the State Information Center.

“This decision is seeing quick result in the countryside,” Xu told participants at CBU/CAR‘s seminar, Understanding China’s Market in the Shadow of World Economic Crisis, held recently in Beijing.

As a result, automobile sales in September are expected to hit 1.2 million units and annual total may reach 12.6 million, up 35 percent, according to Xu. With the subsidy program working in the rural areas, Xu said total sales this year may even approach 13 million.

No doubt China’s stimulus policies have effectively driven market demand, even during the summer months when output and sales are normally at a low point.

The big issue for the industry is next year when most of the stimulus policies are terminated by December 31, 2009.

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