China Loosens Car-Purchase Restrictions to Boost Consumption
Vehicles are displayed for sale in a used car dealership in the Yuen Long district of the New Territories in Hong Hong, China. (Photographer: Paul Yeung/Bloomberg)

China Loosens Car-Purchase Restrictions to Boost Consumption

(Bloomberg) -- China rolled out a series of guidelines to encourage consumption, led by support for the flagging auto market.

The measures include exploring ways to gradually loosen or remove car-purchase limits and support new-energy vehicle purchases in some areas, the State Council, or cabinet, said on its website on Tuesday. Other steps include incentives to build more gas stations in rural areas and removing hurdles to invest in fuel wholesale and storage businesses.

For automakers, the move provides some relief with the industry reeling from a slump that’s dragged on for more than a year. More broadly, China is stepping up targeted stimulus measures to support the economy, which has been slowing due to the effects of weak domestic demand and a worsening dispute over trade with the U.S.

European car stocks rose amid optimism the new guidelines will help the world’s largest car market. The Stoxx 600 Automobiles & Price Index jumped 1% in Frankfurt on Tuesday, outpacing the 0.6% gain in the broader market gauge.

The measures build on policies announced in June, when the government announced it would encourage local governments to provide support to automakers and ban municipalities from placing any new restrictions on car purchases or limits on using new energy vehicles. Last month, people familiar with the matter said the Chinese city of Changsha was preparing to offer residents benefits of as much as 20,000 yuan ($2,910) each on purchases of new vehicles produced and registered in the city.

But China’s efforts to end the auto market’s slide have come short so far. Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles in July fell for a 13th straight month, according to figures released this month by the China Association of Automobile Manufacturers. Companies have seen their earnings shrink, with the latest example being top SUV-maker Great Wall Motor Co., which earlier this week reported a 59% drop in first-half profit.

No Letup

The slump is showing no signs of easing as the Chinese economy faces a slowdown, while stricter emissions rules and the trade war weigh on demand. Carmakers that relied on the world’s largest auto market for growth for decades, pouring billions of dollars into the country, are now left questioning future investment decisions.

“We don’t think this will will enhance auto consumption much,” said Nannan Kou, head of China research at BloombergNEF. “Although we believe the worst is probably over for the auto market, we don’t think prosperous times are coming anytime soon.”

Beyond cars, Chinese policy makers have shown no appetite for aggressive stimulus and remain focused on keeping a lid on debt and financial stability risks. But as the trade war with the U.S. dents confidence at home and abroad, economists have said there’s an increasing need to loosen policy.

The central bank unveiled a major reform to its system of benchmark interest rates last week, a move that could help lower borrowing costs. Fiscal policy makers are stepping up support for the economy with the government considering allowing provincial governments to issue more bonds for infrastructure investment, people familiar with the matter have said.

©2019 Bloomberg L.P.

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