The mainland scrapped subsidies for new car purchases at the weekend - following an earlier increase in sales taxes on small-engined cars - in a move that pushed car stocks lower when markets opened yesterday.
Shares in Great Wall Motor, the country's largest maker of sport-utility vehicles, fell 7.9 per cent to close at HK$22.10; Guangzhou Automobile Group, a joint-venture partner with Toyota Motor Corp and Honda Motor, dropped 2.1 per cent to HK$10.50; Dongfeng Motor Group lost 3 per cent to HK$13; and Brilliance China Automotive Holdings slid 1.3 per cent to HK$5.85.
The declines came on a day when the Hang Seng Index 1.7 per cent, and were triggered by a Ministry of Finance announcement on its website that two of the car-sale stimulus schemes, namely 'cars to the countryside' and 'cash for clunkers', would be suspended from last Saturday.
Earlier last month, the government said the purchase tax on small-engined cars, which was cut to 5 per cent in 2009 and rose to 7.5 per cent last year, would revert to the original 10 per cent rate from this year.
The stimulatory measures were introduced in 2008 and 2009 during the global financial crisis and played a key role in boosting the sales of vehicles in the country.
Under the 'cars to the countryside' scheme, farmers in rural areas who traded up to lightweight vans or bought minibuses with engines no bigger than 1.3 litres would get up to 10 per cent subsidies of the full price of a vehicle.
In addition, the 'cash for clunkers' programme offered car owners a 5,000 yuan (HK$5,886) to 18,000 yuan credit for replacing vehicles that were eight or more years old.
Despite cutting subsidies in some areas, the government stressed it would continue its policies to encourage energy saving and resources recycling in the car industry.
'To accelerate the structural adjustment and upgrade of the industry ... [the authority] will continue adopting financial subsidies to support the promotion of energy-saving and new energy cars in 2011,' the Ministry of Finance said.
Some analysts believe the car manufacturing industry will experience a trough in the first quarter, although sales for the full year are expected to exceed 10 per cent, with more proceeds generated from new energy vehicles.
The mainland is expected to see car sales of more than 18 million once final counting is done for last year, compared with 15 million in 2005.
But the rapidly growing use of vehicles has resulted in serious pollution and traffic congestion. Beijing imposed a cap on the number of new cars from this month, allowing only 240,000 new cars to be registered compared with 750,000 last year.
Once the final counting is done for 2010, mainland vehicle sales should exceed: 18m