China Attempts To Revive Car Sales With Cash Incentives For Buyers After Coronavirus Pandemic Lockdown

Aerial view of thousands of new cars lining up at a parking lot in China.
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China‘s auto market has suffered immensely in the wake of the coronavirus pandemic, with sales plunging 42 percent in the first quarter of 2020. As the world’s biggest auto market fights to get back on its feet and encourage consumers to buy new cars, many local governments are offering people cash subsidies when they purchase a new vehicle, CNN reports.

By April in any given year, China has averaged about 6 million car sales. This year, that total has been about 3.7 million, nearly half the amount. The market plunged 79 percent in February and 43 percent in March, compared to the same months in 2019.

Around 40 million people rely on the auto sector for jobs in China and the industry typically brings in around $1 trillion every year. The market is not only crucial to the country’s economy, but also to the economies of countries all around the world. Companies like Volkswagen and General Motors rely heavily on that country’s auto market for revenue.

While car production has now resumed, the industry is still suffering from a lack of consumers.

Alicia García-Herrero, chief Asia Pacific economist at Natixis, commented on China’s current situation.

“While the supply chain disruption by coronavirus is surely a headache for auto makers, plummeting demand could be even more life-threatening after two consecutive years of sales contraction in China.”

Employees assemble a cars in Mazda's "Family" line of vehicles at China First Automobile Works (FAW) Group Haima Automobile Co., Ltd. April 6, 2005 in Haikou, Hainan Province, China.
  China Photos / Getty Images

The country’s auto industry is currently under pressure to boost sales, as recent estimates warn they could drop 10 percent by the end of the year. In an attempt to encourage consumers to purchase cars, the government is rolling out incentives for buyers.

In Beijing, it was announced that subsidies and tax breaks for new energy-efficient vehicles, like hybrids and electric cars, would be extended for another two years, despite moves to cut these subsidies last year. Various cities and provinces are also incentivizing consumers with cash subsidies, with some pledging to pay as much as $1,400.

Even with these efforts, the car market in China is likely going to continue to suffer. A lack of demand for cars coupled with rising housing costs, a growing gap between the rich and the poor, and regulatory restrictions for banks have all contributed to an overall sag in the industry. Many people do not have the extra funds to spare on expensive purchases like cars.

In García-Herrero’s report, she noted that the purchasing power of Chinese consumers has been steadily weakening, which may contribute to an underlying structural problem that could potentially persist for years to come.