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Grace Lin

Cuatrecasas, Shanghai

grace.lin@cuatrecasas.com

 

Introduction

On 28 April 2020, 11 Chinese governmental authorities under the State Council jointly released a Notice on Measures to Stabilise and Expand Automobile Consumption (Fa Gai Chan Ye [2020] No. 684; ‘Circular 684’), providing five measures to create a more favourable market environment for automobile consumption.

These measures take further steps in addition to the policies released earlier in April 2020, aiming to revive the Chinese automotive market.

Background

In 2018, after 27 years, China’s automotive industry saw the end of its continuous growth since 1991, finishing with a year-on-year decrease of 4.2 per cent and 2.8 per cent in terms of manufacturing and sales, respectively.[1]

The year-on-year decrease in manufacturing and sales continued in 2019, at 7.5 per cent and 8.2 per cent, respectively, with the first decrease for new energy vehicles (NEVs) in a decade.[2]

This continuous decrease put automotive companies and China’s overall economic prospects under enormous pressure, which has been exacerbated by the Covid-19 epidemic this year. In February 2020, when the epidemic was at its peak, the manufacturing and sales of automobiles saw a year-on-year decrease of 79.8 per cent and 79.1 per cent, respectively.[3]

When production and the market began experiencing a gradual recovery in March, the decrease started to lessen, and by the end of April, the year-on-year decrease in manufacturing and sales was 33.4 per cent and 31.1 per cent, respectively.[4]

In this context, China released the measures provided under Circular 684 to rejuvenate its automotive industry.

Stimulus measures

Renew fiscal and tax policies for purchasing NEVs

From a fiscal perspective, the measures extend the financial subsidy available for purchasing NEVs to the end of 2022, which is comforting news for NEV manufacturers.

In 2009, the Chinese central government started granting financial subsidies for NEV purchases. Under the original plan, the grants were to stop at the end of 2020. This created a lot of uncertainty in the NEV market.

However, due to the negative impact of Covid-19, the subsidy has been extended for another two years. It will end at a slower pace than in previous years – in principle, the subsidy standards will be reduced by 10 per cent, 20 per cent and 30 per cent in 2020-2022, based on that of the passing year.[5]

From a tax perspective, the vehicle purchase tax exemption will continue applying to the purchase of NEVs from 1 January 2021 to 31 December 2022.[6] This renews the current policy, which expires at the end of 2020.

Promotion of the second-hand vehicle market

To increase the sales of second-hand vehicles, as well as market vitality, from 1 May 2020 to 31 December 2023, taxpayers distributing second-hand vehicles are subject to VAT at 0.5 per cent (previously two per cent) under a simplified method (ie, no input VAT deduction).[7]

Circular 684 also announced improvements to the vehicle registration system, fully eliminating the restriction on the second-hand vehicle migration policy and expanding the export business for second-hand vehicles.

Adjust implementation of the Phase Six National Emission Standards for Lightweight Vehicles[8]

From 1 July 2020, the Phase Six National Emission Standards for Lightweight Vehicles (GB 18352.6-2016; the ‘Standards’) will be fully implemented nationwide. Thereafter, the manufacture and import of lightweight vehicles must follow these Standards.

Regarding lightweight vehicles manufactured or imported before 1 July 2020, where the Phase Five National Emission Standards were applied, the transition period for their sales, which was scheduled to expire on 30 June 2020, has been extended for six months in the areas that have not yet fully implemented the Standards.

During the transition period, the particle number (PN) limit for lightweight vehicles under the Standards is limited to 6.0 x 10¹²/km. From 1 January 2021, all manufactured and imported lightweight vehicles must follow the PN limit at 6.0 x 10¹¹/km.

Speeding up the removal and scrappage of old diesel trucks

Circular 684 announced the plan to support the removal of old diesel trucks still under the Phase Three National Emission Standards, or lower, in Beijing, Tianjin and Hubei, and their surrounding areas, as well as the Fen-Wei Plains, all of which have fought crucial battles in the combat of smog pollution.

The support will be provided in the form of a reward for eliminating a target of one million vehicles. The reward will be channeled mainly from the collection of vehicle purchase tax.

Promotion of financing for automobile consumption

Circular 684 also encourages financial institutions to actively develop financial services, such as automobile consumer credit, and to increase their support for personal consumer credit to purchase automobiles by reducing the down-payment ratio and loan interest rates to an appropriate amount, as well as extending the repayment period.

Conclusion

Due to the fatigued and weak market for domestic automobile consumption in recent years, combined with the negative impact of the Covid-19 epidemic on its economy, China has released several stimulus measures to revive its automotive industry, while promoting industry upgrades and transformation as well as protecting the environment.

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