China may scrap tax incentives for small cars next year if the market remains strong, and is rethinking plans to provide similar incentives for green-energy vehicles due to quality issues, a government researcher said.
China's car sales zoomed nearly 50 percent last year, even as sales in the rest of the world fell, thanks in part to a series of government incentives designed to stimulate spending during the global downturn.
Car sales have continued to show strong growth this year, up 76 percent in the first three months of 2010 from the same period of 2009, according to government data.
If such strong growth continues, tax incentives that helped to fuel the boom may not be necessary anymore, Xu Changming, director of the information resource department of the State Information Center, said on Thursday.
The market was so good last year, Xu said on the sidelines of an auto industry conference ahead of the Beijing auto show, China's largest, which begins on Friday.
Actually, growth last year was destructive for automakers and not good, he said, adding more moderate growth over 10 percent is considered healthy.
Industry watchers are also widely expecting Beijing to roll out incentives for individual consumers to buy clean-energy cars, such as electric and hybrid vehicles, expanding a current program that awards incentives to government buyers.
Carmakers such as BYD Co (1211.HK), SAIC Motor Corp (600104.SS) and Chery Automobile are relying on such incentives to help boost sales of their newly developed clean-energy cars.
But Xu said the government could take a different tack due to quality concerns about such new vehicles, many of which are based on newly developed and still unproven technologies.
The government might not give subsidies to individual buyers because quality is still a big issue for green cars at the moment, Xu said.
They might set up a third-party institution to rent cars to buyers, and if they have any problems they can send the cars back to that third party. This is an option, but nothing has been finalized so far, he said.
Xu also added that the government was considering giving auto financing companies more flexibility, such as allowing them to issue corporate debt -- something only a small number of financing firms can do now.
China overtook the United States to become the world's largest auto market last year, as sales rose about 50 percent boosted by a raft of government incentives. (Reporting by Fang Yan and Doug Young; Editing by Jacqueline Wong)