China mulls 50 per cent cut in tax on car purchases to revive flagging market

China is considering a tax cut to revive its flagging automotive market, according to people familiar with the matter, lending support to a key industry that’s been damaged by the trade war with the US.

Carmaker shares surged after Bloomberg News reported the proposal, which would stimulate a market they have increasingly relied on for growth. Volkswagen, selling just under 40 per cent of its vehicles in China last year, rose as much as 6.9 per cent, the biggest intraday move since July 2016. Ford Motor and General Motors rallied in US trading, while BMW and Daimler gained in Germany.

The move would help shore up the world’s largest automotive market, which is facing its first decline in more than two decades as a trade war with the US hits consumer spending power.

A torrid few months of escalating countermeasures have led Volkswagen, Ford and Renault to all cut their outlooks, as sales in the country slid for four straight months. Tensions with the US have started to ripple more broadly through China’s economy and its stock market, showing a more direct impact than on the US.

To counteract the slowdown, China’s top economic planning body is proposing to halve the tax on car purchases to 5 per cent. The measure would apply to cars with engines no bigger than 1.6 litres, said the people, declining to be named because the information is not public. China’s National Development and Reform Commission, also the top regulator, has submitted a plan but no decision has been made, they said.

“This is definitely good news and a message the market has been waiting for,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler.