Chinese Dealers Call for Tax Cuts to Boost Car Sales

China should cut its tax on new cars by 50% to help revive demand, says the China Automobile Dealers Assn.

Reuters cites analysts who say that, without government help, the Chinese car market could shrink this year for the first time since the early 1990s.

Sources tell the news service that CADA has asked China’s commerce and finance ministries to drop the tax to 5% from the current 10% for vehicles with engines displacing 2.0 liters or less. A similar move in 2016 for cars with engines no bigger than 1.6 liters triggered a 16% jump in new-car retail sales.

But retail sales growth in China slowed to 2% last year when the tax rate was raised to 7.5%. CADA says gains this year through August slowed to 1%, dragged down by 4% declines in July and August. September data due tomorrow is expected to show a steeper decline.

LMC Automotive notes that dealers in China have been struggling with bloated inventories all year. Now demand is cooling, in part because of worries about the escalating trade war between China and the U.S.