China to relax trading of used cars to spur new vehicle demand

China will take further steps to relax trading of used cars in an effort to encourage existing owners to sell their old vehicles and buy new ones in the world’s biggest auto market.

Sales of used cars are likely to maintain a fast pace of growth, the Ministry of Commerce said in a faxed statement last week. The ministry hasn’t yet deliberated on whether to resume incentives for residents in rural areas to buy new cars, it said, without elaborating.

The government is counting on a more active used-car market to encourage existing owners to sell their vehicles and buy new ones especially in the bigger cities where ownership is restricted due to traffic congestion and air pollution. Sales of pre-owned cars have been picking up in China after the State Council ordered most local governments to remove restrictions on used-car registrations by May last year.

Growth in new-car sales in China may slow after the government scaled back incentives this year, but deliveries in lower-tier cities and rural areas will expand more quickly than in first- and second-tier cities, the ministry said.

China halved a 10 percent sales tax on small-engine vehicles in October 2015, helping push deliveries to a 26th straight annual record last year. The levy has been raised to 7.5 percent this year. Auto sales rose 6.3 percent in the first two months of 2017, according to China Association of Automobile Manufacturers.

Carmakers and dealers in the world’s largest auto market are at odds over the need for government measures to boost vehicle deliveries in rural areas after sales climbed in January and February, against expectations they would weaken following the increase of the levy. The government regards the auto industry as a pillar of the Chinese economy and uses stimulus measures to spur its growth, including incentives to encourage residents in rural areas to buy cars that were implemented from March 2009 to December 2010 during the global recession. Bloomberg