China to Halve Purchase Tax on Cars with Small Engines

China's central government hopes to stimulate new-car sales by lowering the purchase tax from 10% to 5% on vehicles powered by engines displacing 1.6 liters or less.

The incentive, which affects roughly 60% of China's auto market, will begin on Oct. 1 and expire at the end of 2016. When the government took a similar step in 2009, car sales surged more than 50%, The Wall Street Journal notes.

New-car sales in China have sagged below year-earlier volumes since June. In July the China Assn. of Automobile Manufacturers lowered its forecast for full-year sales growth to 3% from its initial prediction of 7%. Some analysts have suggested that, without incentives, the market could shrink this year.

Demand has been dampened by the country's cooling economy, gyrating stock market and tougher licensing restrictions in big cities.