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Cabinet plan targets core industries: autos, steel

CHINA yesterday approved tax cuts, subsidies, research and development funding and other measures to help two core industries - autos and steel - survive the economic downturn and do their part to stimulate a flagging national economy.

At a meeting of the State Council chaired by Premier Wen Jiabao, participants emphasized the importance of the two key industries and their close relationship with other sectors in driving domestic consumption.

In the automotive industry, the government drive focuses mainly on expanding vehicle sales, especially in rural areas, and promoting technology innovation. Industry consolidation and new-energy vehicles were also highlighted in the long-awaited revitalization plan issued by China's Cabinet.

From next Tuesday until the end of this year, the sales tax on passenger cars with engines 1.6 liters and below will be cut in half to 5 percent, according to a statement posted on the State Council's Website.

The government will also offer 5 billion yuan (US$731 million) in subsidies from March 1 until the end of the year for farmers who replace their old three-wheelers and trucks for light commercial vehicles or who buy minivans with engine displacements below 1.3 liters.

"The basket of favorable policies is very aggressive," said Yale Zhang, director of the automotive division of consultants CSM Asia Corp in Shanghai.

Sales growth for China's auto industry slowed to a 10-year low of 6.7 percent last year. Total vehicle sales reached 9.38 million units, short of the 10-million target.

Passenger car sales dropped during four of the last five months of 2008, compared with average 20-plus percent growth over the past three years.

As such, car makers have been calling for favorable policies from the government to spur sales after they struggled to reduce stockpiles and resorted to temporary production suspension, job cuts and extended worker holidays.

"The revival plan not only focuses on a sales boost in the short term but also outlines the long-term development of the industry," said CSM's Zhang.

Under the plans announced yesterday, the government intends to allocate 10 billion yuan over the next three years to car makers to support the development of new-energy vehicles and promote technology upgrades and innovation.

The revitalization package for the steel industry wasn't as precisely defined, but the State Council did reaffirm China's aim to transform its steel sector from a large industry into a strong one.

China will implement more measures to boost domestic demand and adopt a flexible export tax policy to help its steel industry, the world's largest, in both domestic and international markets, the Cabinet said.

The plan also offers measures to promote consolidation, technology upgrades and the shutdown of obsolete capacity, the government said without elaborating.

And it calls on the industry to step up efforts in regulating the iron ore import market and improving risk control in steel production and sales. Analysts said they expect details of the package to be rolled out later.

"When we make a plan to support the steel sector, one key issue is to have a clear idea of how much steel China needs and what kind of products it needs," said He Rongliang, an analyst for the government-backed trade information service DPPC.


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