China considering halving car sales tax; shares rally

Sales of cars in China – the world’s biggest and most lucrative car market – fell by 11.6% in September to 2.39m, the biggest decline in nearly seven years.

Beijing is worried that the trade war is affecting demand for cars and will slow the Chinese economy. Big cities are also looking to cap new car sales to ease congestion. China’s main economic planning body is therefore proposing cutting the tax by a half, according to Bloomberg, to support sales. Beijing last cut car taxes three years ago, causing sales to temporarily surge.

The unconfirmed report suggested that a plan had been submitted policy makers to cut the purchase tax on passenger vehicles with engines no larger than 1.6-litres in half from 10% to 5%. Data from China's automotive body suggests that more than two thirds of the country's vehicles have an engine of 1.6L or lower.

On Wall Street, Ford Motors and General Motors were both ahead in pre-market trading, while in Europe, Volkswagen was up 5%, BMW 4% and Mercedes-Benz owner Daimler 5% by lunchtime.

For many car makers, China is their biggest market. Daimler cited China as one of the reasons behind a second profit warning recently.

Since coming to power, US president Donald Trump has targeted China, claiming that American companies are struggling to compete. He has imposed tariffs on $200bn of Chinese goods, around 40% of the items imported into American from China. In return, China has imposed its own restrictions on US goods.