Carmakers Ready to Face China's End of Tax Incentives

China remained on the top of the auto markets, even in the last couple of years when giants such as General Motors and Chrysler had to step under bankruptcy protection, and eventually became the number one destination for many of today's large car producers. But the Chinese government yesterday announced that tax incentives will no longer be offered, while charges for vehicles with engines of 1.6 liters or smaller will be raised.

How does that sound for companies that invested billions in China in the last months? Paradoxically, not that bad. General Motors, Geely and BYD, meaning three of the large entities that are selling cars in China, explain that the end of tax incentives shouldn't affect new car sales too much. Why?

Because the demand for new vehicles is continuously growing and the number of people looking to purchase a car in China is expected to counter those who delay buying a vehicle because of the taxes.

“Some of the government incentives will be taken off, but there is tremendous underlying demand,” Kevin Wale, GM’s China president, was quoted as saying by Bloomberg.

In the meantime, the Beijing authorities have imposed new regulations to counter the number of cars being sold across the Chinese capital, thus reducing smog, traffic and congestion. Only 240,000 license plates will be issued in 2011, as the local government intends to reduce sales by up to 70 percent.

If GM and other big names in China are confident sales will go well in 2011, others are a little bit worried.

“Definitely this will impact our sales in Beijing next year, But it's hard to say what percentage will be affected specifically. In fact, what worries me more is that other cities will follow Beijing's lead to issue such regulations, and that will have a bigger impact,” said Chery spokesman Jin Yibo.