China state planner douses hopes for auto tax cuts, tells sector to buckle up

BEIJING/SHANGHAI (Reuters) - China’s powerful state planner said on Thursday it had not considered reducing the vehicle purchase tax, seemingly pouring cold water on industry hopes that Beijing might cut the tariff by half to shore up the flagging auto market.

Meng Wei, spokeswoman for the National Development and Reform Commission (NDRC), said the world’s largest auto market was feeling major pressure but that the slowdown could actually help weed out weaker players.

“Objectively, this (slowdown) could help stimulate the workings of the market, strengthen the industry’s core competitiveness and eradicate outmoded capacity,” Wei told a press conference in Beijing.

“Currently our commission has not considered or proposed the idea of ‘cutting the purchase tax to 5 percent’,” she added. The purchase tax rate is currently 10 percent.

China’s car market is on the brink of an annual contraction not seen since at least 1990 after sales fell 11.7 percent in October, the fourth straight month of declines.

Reuters reported in October that China’s car dealers, hit hard by the slowdown, were pushing Beijing to help prop up the sector, including a proposal to authorities to cut the level of purchase tax on some smaller cars in half.

Bloomberg also reported late last month that China’s top economic planning body was proposing to cut the tax levied on car purchases by half, as the impact of an escalating trade war with the United States threatens to slow the Chinese economy and affect demand for vehicles.

China’s auto market grew 3 percent last year, according to industry body the China Association of Automobile Manufacturers (CAAM), but was still sharply down from a 13.7 percent gain in 2016 that was aided by a purchase tax cut on smaller cars.

Weakening sales and uncertainty over stimulus suggest local car makers and global brands from General Motors GM.N to Toyota Motor 7203.T are in for a tough ride at a time when they are increasingly looking toward China as a driver of growth.

“Without supportive policies, weakness could continue to mid-2019, which we suspect will be intolerable for government,” brokerage Jefferies said in a note this week.

Reporting by Shen Yan in Beijing, Adam Jourdan in Shanghai and Beijing Monitoring Desk; Additional reporting by Norihiko Shirouzu; Editing by Shri Navaratnam and Muralikumar Anantharaman