In order to encourage cleaner energy consumption, the Ministry of Finance has announced that vehicle and vessel taxes on new energy vehicles (NEVs) and ships powered by natural gas are to be scrapped, starting from July 31. Types of commercial NEVs affected include pure battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell electric vehicles (FCEVs). For passenger vehicles, only PHEVs are to be affected (BEVs and FCEVs are not subject to the vehicle and vessel tax).
Some energy-saving passenger and commercial vehicles that meet specific standards are also entitled to have vehicle and vessel tax halved. Energy-saving passenger vehicles that qualify, for example, include gasoline-powered and diesel-powered vehicles with an engine size of 1.6L or lower, having been sold in the Chinese market and meeting relevant fuel consumption standards.
Roskill view: With regards to importation, China began cutting import tariffs on vehicles to 15% and import tariffs on auto parts to 6% on July 1 (an additional 25% import tariff on vehicles made in the US was added on July 6, however, in response to the escalating China-US trade situation). In 2017, China imported 1.25M vehicles, including about 0.28M vehicles (or 22%) from the USA. The overall brand structure of the imported auto market in China may change significantly in response to the massively increased import tariff on US-made vehicles and decreased import tariff on other vehicles. The impact on the domestic auto market, however, could be controllable based on the current reactions of various auto makers.
With regards to manufacturing, global auto makers have been pushing for electrification since 2017. Volvo, for example, has announced plans to electrify all models from 2019. Mercedes-Benz announced to offer electrified versions of all its models by 2022. Chinese auto maker, BAIC Group, announced that its own brands stopped producing fossil fuel vehicles in Beijing at the end of last month. With the efforts of the vehicle and vessel tax reform, car production and sales will be further stimulated in China, specifically those of NEVs.