China Approves Support Package for Steel, Auto Makers

China, the world’s biggest steel producer and second-largest auto market, will implement tax cuts and offer subsidies as part of measures to bolster the industries as the economy slows.
The government will cut the sales tax on vehicles with engines smaller than 1.6 liters to 5 percent between Jan. 20 and Dec. 31, and ban expansion of steel-making capacity, the State Council said in a statement on its Web site. The government also said it would encourage mergers and acquisitions in both sectors, the statement said.
China is spending 4 trillion yuan ($584 billion) to stimulate its economy through infrastructure projects as it faces the weakest economic expansion since 1990 after trade growth collapsed because of the global recession. Waning demand has curbed China’s car sales and cut steel prices, causing losses among the major mills.
“The impact on consumption and on these industries remains unclear because of lack of details about how it will be executed,” Ricon Xia, analyst at Daiwa Associate Holdings Ltd., said by phone from Shanghai today. “Restructuring in the auto industry will take time.”
The government will give 5 billion yuan in subsidies from March 1 to Dec. 31 to farmers to upgrade light vehicles or buy small passenger cars with engines under 1.3 liters, the statement said. The government also earmarked 10 billion yuan for technological innovation and the development of alternative fuel cars and components over the next three years.
Falling Sales
The government has already axed some road taxes to help spur car sales, which have fallen in four of the past five months because of the cooling economy and rising job insecurity. The decline has hit domestic carmakers as well as General Motors Corp. and Volkswagen AG, which are counting on emerging-market sales to offset slumping U.S. and European demand.
China vehicle sales may climb about 5 percent this year, the slowest pace since 1998, the China Association of Automobile Manufacturers said Jan. 12.
Sales of cars, trucks and busses increased 6.7 percent last year to 9.38 million, said the group, which represents automakers active in the country. A year earlier, sales jumped 22 percent.
China will also adopt flexible steel export taxes to maintain the industry’s share of the international market, today’s government statement said.
China’s biggest mills posted combined losses in the fourth quarter as steel prices fell faster than raw material prices. Baoshan Iron & Steel Co., may post its first quarterly loss when it reports in March, said JPMorgan Chase & Co.