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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 197

China Business Intelligence No. 197

Samsung Economic Research Institute Beijing Office

June 24, 2011

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Growth in China's auto sales dropped steeply, sinking from 47.5% in 2009 and 32.5% in 2010 to 5% during the January-April period of this year. Auto sales growth in the latter half of this year is expected to decelerate even further, and is forecast to fall below 2008 levels, hitting a 10-year low. Changes in government policies are the main culprit in the auto market's downturn. To maintain economic growth through expanded consumption, the government in 2009 introduced a variety of pro-consumption policies such as sales tax reductions, subsidies for auto purchases in rural areas and the "cash for clunkers program." However, subsidies were removed as upgrades of industrial structures proceeded in 2011. During the same year, the government raised the sales tax on small-sized cars back to 10% and subsidies for auto purchases in rural areas and the cash for clunkers program were abandoned. Thus, companies need to manage production and resources based on strategies that reflect government policies. They should also adjust production in tandem with the adoption or removal of policy support and diversify sales in view of possible changes in domestic policies.

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