Fork in the Road for China’s Car Purchase Tax


For several months after China halved the car purchase tax rate January 20, vehicle sales soared. Sales Dealers sold 4.96 million units during the first five months of 2009, up 14 percent year-on-year, raising the possibility that annual sales could surpass 10 million.

But the good times passed quickly. The trend reversed course in June; passenger car sales fell 16 percent in the first week of that month alone.

The car industry is considered an important growth engine for China’s gross domestic product. So when the government last year implemented a series of policies aimed at stimulating the economy, measures to boost the were rolled out first, and the purchase tax rate was ordered cut in half for cars whose engines don’t exceed 1.6 liters.

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