F A M I LY
Hit the Road, Tax China’s Car Sale Slump and How to Take Advantage Interview by Joshua Cawthorpe
T
he State Taxation Administration and the Ministry of Finance announced new measures to stimulate China’s sputtering automobile industry. The statement, made on May 31, announced that purchase taxes would be slashed in half on vehicles under RMB300,000 and with an engine displacement of no more than two liters. The incentive program came into effect on June 1 and runs through the final day of 2022. Aaron Lu, who has worked with BMW, Porsche and Lincoln since 2017, sheds some light on the current state of car sales in the world's most populous nation. He tells That’s , “The automobile industry accounts for about 10% of China's GDP, and automobiles with less than RMB 300,000 occupy the largest market share.” Lu points out that this is not the first time this strategy has been employed to correct slumping car sales. “Reducing vehicle purchase tax has always been one of the important means to promote consumption and boost the market. From 2009 to 2010 and 2016 to 2017, China implemented two rounds of vehicle purchase tax reduction and exemption policies, which effectively promoted the growth of the market by stimulating automobile market consumption, alleviating to some extent the adverse impact of the 2008 financial crisis and the 2015 domestic economic downturn on the market respectively.” Acknowledging the impact of the pandemic on China’s overall economy, Lu demonstrates that the first two years of it saw resilient car sales. Quoting internal notices circulated through dealerships, Lu continues, “According to the China Association of Automobile Manufacturers, the cumulative sales 40 |AUGUST 2022
volume of China's car market in 2020 was 25.311 million vehicles, passenger cars accounted for 20.178 million and were down just 6% year-on-year. In 2021, the domestic sales volume was 26.275 million units, with a year-on-year growth of 3.8%, ending the three-year decline.” This hopeful trend was short lived, however, as Lu paints a much darker picture of April 2022. “Retail passenger car sales were just 1.042 million units, down 35.5% year-onyear and 34% month-on-month, both reaching record lows in April. Production also plummeted, with only 969,000 cars produced nationwide, down 46.8% from the previous month.” It becomes blatantly obvious that numbers like these would trigger a response from market authorities. We ask Lu to elaborate on how much tax one normally pays on a vehicle and what these incentives actually amount to. “First of all, passenger cars over RMB1.46 million are subject to an additional luxury tax.” Lu adds, “Tax on vehicles below that amount is calculated by dividing the vehicle invoice price by 11.3. For example, a car with a ticket price of RMB100,000 would pay RMB8849.5 in purchase tax. If that car meets the requirements of the new incentive policy, then the buyer only pays RMB4424.7.” This would mean that the maximum savings offered through this policy would be RMB13,274. Nonetheless, Lu says that Chinese consumers aren’t interested in gas cards, free add-on features or other “outdated tricks” when car shopping. “Chinese consumers prefer cash discounts and there is not much dealers can do other than squeeze their own profits. The actual price of cars has dropped a lot in this depressed environment.” While inflation, shipping delays and vehicle shortages have caused prices to rise in North America, now might be the optimal time to purchase a vehicle in the Middle Kingdom. We ask Lu what RMB300,000 can buy in the current automobile market. He tells us that there are models from traditional luxury brands like MercedesBenz, Audi and BMW in this price range. Almost all the Chinese car companies, like Hongqi, BYD and Great Wall, are
available within this price range. As for pure electric, there are about 30 models from 10 different manufacturers available for RMB300,000 or less. “Even a Tesla Model 3 can be purchased for RMB279,900 and China's own popular electric car brands, like Xiaopeng and Huawei's AITO, have models priced under 300,000 yuan. But pure electric cars are not subject to purchase tax in mainland China.” This revelation leads us to ask about how electric vehicles are faring in the current slump. We know that, in Guangzhou, new license plates are given out through a lottery to reduce the number of polluting vehicles on the road. Electric vehicles get their plates right away. Fully electric passenger vehicle sales rose 10.9% in 2020 and, according to CNBC, the Hongguang Mini was the best seller. The collaboration between General Motors, state-owned SAIC Motor and tiny-truck maker Wuling produced a compact two-door budget electric vehicle and sold almost 400,000 units, starting at only RMB28,000, in that year. In 2021, 3.52 million new energy vehicles (NEVs) were sold in China, as per China Daily . In spite of ongoing preferential policies and surging popularity, electric cars have not been spared in this spring’s downturn.
