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China's car market on edge over tax break fate

Tuesday, November 22, 2016 - 01:43

Car makers in China fret over whether a tax break propping up this year's sales will be extended. As Ryan Brooks reports, if Beijing lets it lapse it could mean the first decline in sales for the world's largest auto market.

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Carmakers in China - sweating over a critical decision from the governent... Whether or not to renew a tax break that's lifted a market on the verge of decline into double digit growth. Spooked by the slowing economy, Beijing halved the sales tax on small cars last year - propelling profits up nearly 14 percent. But that break is set to expire in December... fueling fears of the first annual decline in sales in the world's largest car market. (SOUNDBITE) (English) JAKE SPRING, REUTERS REPORTER, SAYING "The tax cut is set to expire at the end of the year and if it does, analysts are expecting that growth could slip 2 or 3 percent, or be flat at best, if the government does extend, they said they are considering it, we could see another year of 4-5 percent growth, but it just kicks the problem down the line. Sooner or later, its gonna expire." The tax break disappearing wouldn't just hurt China's aggressive domestic carmakers... It would also be a big setback for global firms like Volkswagen, which plans to make 5 million vehicles a year in China by 2019. Companies could be forced to squeeze profit margins or offer heavy discounts... But for Beijing, short term pain could spell long term gain. (SOUNDBITE) (English) JAKE SPRING, REUTERS REPORTER, SAYING "If they were allowed to expire, it would hit the bottom line of the market, but it would lead to more sustainable growth rather than what the government has done in the past, they move in to stimulate the market and this creates unsustainable swings it makes it very difficult for automakers to plan ahead." One possibe winner if the tax break goes away: the luxury sector. Most high-end cars are too big to have benefitted from the scheme... And some experts say an expiry could be a big opportinity for a segment that could grow by up to 10 percent in 2017.

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China's car market on edge over tax break fate

Tuesday, November 22, 2016 - 01:43