Hunan Tries to Jumpstart Local Car Sector

Central China’s Hunan has become the nation’s second province to offer subsidies for new car buyers, seeking to assist a sector that was already suffered sluggish sales when it took an even bigger hit from the Covid-19 outbreak.

The state planner’s office in Changsha, capital of Hunan, recently issued a plan to offer subsidies of up to 3,000 yuan ($428) per car purchase, the Hunan Daily reported. A spokesperson from the local auto dealers association confirmed the report.

Under the policy, buyers can receive subsidies of 3% of the base cost of the car they purchase, up to the 3,000 yuan limit, for models from eligible brands including domestic name BYD and cars produced by the local joint ventures of Volkswagen, Mitsubishi, Fiat and Jaguar. All cars must be manufactured locally in Changsha, and the policy will remain in effect through June 30.

Also in Hunan, the economic development zone in the city of Xiangtan released its own document on March 1 announcing subsidies of up to 3,000 yuan for buyers of some models from Geely, another major domestic brand, in the cities of Xiangtan, Zhuzhou and Changsha. In announcing the incentives, Hunan joined the city of Foshan in South China’s Guangdong province, which last month said it would provide subsidies of up to 2,000 yuan for first-time new car buyers, and up to 3,000 for people trading up from older cars.

China’s car industry has been slumping for more than a year after two decades of explosive growth. Analysts previously forecast that 2020 would see a bottoming out, with sales either flat to down slightly for the year. But the new coronavirus outbreak has added to the industry’s woes. China’s car sales plunged 80% year-on-year to a record low in February, led by a 96% year-on-year fall in the first week of February, according to the China Passenger Car Association.

At a monthly briefing earlier in March, the China Association of Automobile Manufacturers called on the government to offer subsidies, provide tax incentives and take other actions to stimulate demand.

China has yet to announce any national incentive plans to help the industry. But the national state planner began calling on local governments to provide incentives when the sector began to sputter last year. In particular, it called for relaxation of buying restrictions imposed by many major cities to ease congestion and mitigate air pollution.

Cities that heeded that call have included Guiyang, Guangzhou and Shenzhen, as well as the island province of Hainan. More recently, the government has issued documents calling for steps to boost broader consumer demand, following a sharp decline in the first two months of the year. Government data released this week showed China’s retail sales fell 20.5% year-on-year for the combined months of January and February, representing the biggest drop since record keeping began.

In response to the drop, 10 central government agencies issued a document at the end of February discussing ways to boost broader consumption. That included a section on the auto industry, reiterating the previous calls for cities to ease buying restrictions.

Contact reporter Yang Ge (geyang@caixin.com; twitter: @youngchinabiz)