Car stocks tumbled yesterday following Guangzhou's weekend decision to halve the annual cap on new car registrations.
Mainland car stocks also carried on their slide from Monday, when the Hong Kong market was closed for a public holiday.
Guangzhou Automobile, which is expected to be hit the hardest by the registration cap, saw its shares fall 4 per cent to HK$6.18 while Hebei-based Great Wall Motors dropped 2.47 per cent to HK$15. Beijing is a major market for Great Wall, has had a similar cap in place for over a year.
Dongfeng Motor slid 4.4 per cent to HK$11.38 and Geely Automobile shares shed 2.96 per cent to close at HK$2.62.
Car dealers also took a hit. Zhongsheng Group, the mainland's biggest dealer, dropped 2.6 per cent to HK$9.11.
But Baoxin Auto, a major player in the eastern region and untouched by the cap, rose 2 per cent to HK$4.5.
Hubei-based China Zheng Tong Auto, which deals in premium and luxury brands, was expected to escape unscathed as well and rose 1.7 per cent to HK$4.15.
The Guangzhou municipal government announced on Sunday that the number of new car registrations would be capped at 120,000 for the year up to June 30, 2013.
The cap is an attempt to stem the city's worsening gridlock and air pollution. Some 226,000 cars were sold in Guangzhou in the last year. The policy is also designed to close the gap between available road space and the number of cars in the southern city.
New car sales have grown at 19 per cent annually for the past five years in Guangzhou, outpacing the construction of new roads and parking spaces.
Traffic problems were so bad that, according to the Guangzhou government, the average driving speed on 27 per cent of the city's major routes was just 20 km/h.