SHANGHAI -- Thanks to the halving of purchase tax in January on vehicles with engine displacement of 1.6 liters and below, auto sales in China have maintained robust growth so far this year.
While benefiting hugely from a burgeoning market, automakers and dealers in China now face a big unknown: whether the tax incentive will be extended after it expires at the end of this year.
It is time for the government to give clear indications on what it will do with the tax incentive; not just for the sake of businesses, but for the good of the market as well.
The year-end is only two and a half months away, but the government is still either unable or unwilling to announce its decision on the tax incentive.
This has not only made it difficult for auto manufacturers and dealers to plan ahead, but also posed a grave threat to the stability of the domestic auto market.
Obviously, the steep purchase tax cut in the beginning of the year has done a fabulous job in stimulating auto sales.
According to China Association of Automobile Manufacturers (CAAM), auto sales nationwide surged 29.2 percent year-on-year to 8.3 million units in the first eight months of this year.
And the growth was mainly propelled by the small vehicle segment -- CAAM figures show up to 70 percent of the new cars sold in the period were those with an engine displacement of 1.6 liters and below.
We all know such growth is not sustainable. What the government needs to do now is ease the market into a slower and yet more sustainable growth mode.
Most people I know in the industry here guess instead of abolishing it altogether, the government will fine-tune the existing tax incentive for auto purchasing next year to bring it more in line with its stated policy of encouraging fuel efficiency.
But this is just a guess. The government should make it clear exactly what it will do next year.
Otherwise, consumers who originally planned to buy cars next year will rush into the market in the next few months for fear that there will be no vehicle purchase tax cut next year.
In such a scenario, China's auto market will continue to steam ahead, at even a faster speed.
But then it will come to an abrupt halt at the year-end. That will force a whole industry with overcapacity into a hard landing as a lot of the purchasing power that could otherwise have been saved for the next year has already been consumed.
Yang Jian is the managing editor of Automotive News China