SHANGHAI -- After posting annual growth of above 20 percent for years, auto sales in China finally reached a turning point in 2008. In August, the market started to shrink.
But the market downturn in 2008 was a blessing in disguise. It is prompting China's government to adopt new polices for the sustainable development of the domestic industry.
The American auto industry is reeling from the credit crisis and subprime mortgage collapse. And the pain has spread to Europe and Japan.
But China is lucky. The car ownership rate, estimated at below 50 units for 1,000 people, is well below the international average, let alone those of developed economies. The demand for cars, though temporarily suppressed, is still healthy.
More importantly, the current market downturn has spurred the Chinese government to make some long overdue changes in industry policies.
China sources half of its oil supply from overseas, but until quite recently the government subsidized oil prices to keep them below international levels.
That fueled exuberant sales of gasoline-guzzling vehicles. In the first half of 2008, SUVs sales nationwide surged 41 percent from a year ago, according to the China Association of Automobile Manufacturers.
But thanks to the current downturn of the global economy, crude oil prices have dropped to around $50 (340 yuan) per barrel on the international market. That provided the government the opportunity to raise the fuel tax.
Effective January 1, the consumption tax of gasoline was lifted to 1 yuan (15 U.S. cents) per liter from previously 0.2 yuan (3 cents) while that of diesel to 0.8 yuan (12 cents) from 0.1 yuan (1.5 cents).
Meanwhile, the government has also abolished most of the fixed fees charged on vehicles. These fees mainly include road maintenance fees, which are about 1,440 yuan ($210) a year per vehicle. They also include small surcharges levied on vehicles used for commercial purposes.
Shanghai continues to charge license fees, the only city to do so. License plates were auctioned at above 30,000 ($4,400) in December.
Eager to boost auto sales, the government is widely expected to soon replace the existing flat 10 percent vehicle purchase tax with one that varies according to engine size.
In addition, it is planning to offer incentives to stimulate trading of used cars and to encourage people to abandon old cars for new and energy saving ones.
Of course, the government can do more to fix some longstanding problems besetting the domestic auto industry, such as forcing inefficient state-owned automakers to close or merge with healthy companies.
But thanks to the policy measures the government has taken since late last year, China's auto industry will be able to grow in a more sustainable way once the economic recession ends.
You may e-mail Yang Jian at [email protected]