SHANGHAI -- Old habits die hard. Beijing just can't control the urge to intervene in the domestic auto industry.
On Oct. 1, the central government slashed the purchase tax on small cars to 5 percent from 10 percent. The tax cut is intended to boost sales through 2016, after which it expires.
But the incentive, which applies to vehicles with engine displacement of 1.6 liters or less, will do more harm than good to China's domestic automakers.
Does the industry need such a stimulus? True, China's overall light-vehicle sales declined in June, July and August. But sales rose 3.3 percent in September, a turnaround that occurred before the tax cut took effect.
Last month, most Chinese and Japanese brands managed to increase their sales. And other foreign automakers that suffered sales declines in the summer have started to recover.
For example, two major luxury brands, Audi and BMW, reported impressive sales growth in September.
Even General Motors, which reported a 3.3 percent sales decline last month compared with September 2014, appears poised for recovery. In September, its deliveries advanced nearly 19 percent compared with August -- the company's second-straight month-to-month sales increase.
These companies are improving because they have adjusted their product mix and stepped up launches of compact SUVs, which are in strong demand. That suggests the market rebound is likely to endure.
So the tax cut is unnecessary. And it may even be detrimental to the long-term health of China's auto industry.
First, it will derail the market from its normal growth track and make it harder for automakers to plan ahead.
That is what happened the last time. When the world was engulfed in an economic crisis in 2009, China halved its purchase tax for vehicles with engine displacement of 1.6 liters and under. The result? Light-vehicle sales soared 53 percent that year.
In 2010, Beijing raised the tax on small vehicles to 7.5 percent, yet light-vehicle volume still surged 33 percent. But when the tax was restored to 10 percent in 2011, sales growth slowed to 5.2 percent.
It is devilishly difficult for automakers and their multiple suppliers to adjust production to such volatile business cycles.
More important, a short-term stimulus simply delays consolidation of China's auto industry.
China still has more than 70 domestic light-vehicle manufacturers. Most of these companies sell a small number of small cars and microvans, and they survive with the help of government subsidies.
To avoid wasting capital, these small and weak players should close or merge with other companies. But the latest tax cut will keep these companies afloat for quite a while.
China's auto market has turned the corner without government support. A heavy dose of tax incentives will provide an additional boost in the short run, but the price is too high.
