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China institutes new car policies, but are they enough?

China will raise the sales tax on small cars starting January 1. Photo by Jake Ji.

This post originally appeared on The City Fix.

One present Santa may have brought a lot of Chinese families this year: a small car.  On Tuesday, the Chinese government announced a 10 percent sales tax on small cars effective January 1, sending many who had planned to purchase private vehicles in a dash to meet the year-end deadline.

In fact, November boasted record sales of vehicles across China with a 27 percent increase and 95,100 vehicles sold in Beijing alone.  A Reuters article reported Chinese auto dealers saying that they were running out of vehicles due to a last-minute frenzy where buyers rushed to take advantage of favorable tax subsidies, which were originally put in place last year to encourage the purchase of smaller, more fuel-efficient vehicles in China.  These subsidies cut taxes to 5 percent on vehicles with engines 1.6 liters or smaller in January 2009 and were subsequently increased to 7.5 percent.

The new regulations announced on the Ministry of Finance’s website are expected to curb the growth of small car sales by a third. Small cars currently comprise 60 percent of passenger car sales in China, which grew by a whopping 34.9 percent in the first 11 months of 2010.  As the world’s largest auto market,analysts are predicting these policy changes for small vehicles will undoubtedly have rippling effects on car manufacturers throughout the world.  For example, U.S. automakers, which have a comparative advantage in producing larger cars, may see increased sales in China.

While it may seem that the end of these tax subsidies should retard the growth of the Chinese auto market, demand is actually still expected to increase. According to the Beijing Traffic Management Bureau, Beijing adds 2,000 new cars to the roads each day. To date, the city boasts 4.8 million vehicles and 6.25 million drivers.  These staggering statistics mean that only curtailing car sales while failing to address other underlying causes and potential solutions to traffic woes would be like treating only one symptom of an illness while ignoring the rest.

Therefore, any policy aimed to relieve traffic congestion and improve mobility must use a multi-faceted approach, which is what Beijing officials are considering.  Earlier this month, they released a plan for public consultation that included six major measures to tackle the capital’s worsening traffic conditions. These measures include the construction of 280,000 parking spaces; 1,000 bike sharing stations; 348 miles of new subway track; 125 miles of new downtown streets (I’d like to see where these are going, considering 720,000 square meters of downtown Beijing is the Forbidden City); 23 miles of tunnels; 9 new transportation hubs; 3 congestion zones; and, my favorite, “the use of modern technology.”  The city will also cut the number of new licenses by a third to 240,000 for 2011.  The most controversial elements of the plan are the measures to levy congestion charges during peak hours and restrict car usage. It seems that Beijingers want to have their cake, and drive it too.

Still, even with a versatile plan of attack in place, the drivers (no pun intended) for car ownership are compelling, particularly for a growing middle class that sees posessing a car as a benchmark of wealth.  Since my time living in and out of Beijing the last four years, I’ve witnessed the construction of 10 new subway lines.  Even though a consistent ticket price of 2 RMB (about 30 cents) has meant that subway cars are almost always jam-packed, public transportation seems to have had a negligible effect on Beijing’s roadways.   Zhao Jie, a transportation expert at the China Academy of Urban Planning and Design, told The New York Times that despite these significant investments in subway lines and bus transport , “the stimuli to car ownership are even more powerful.”

Beijing officials will release the final version of the traffic proposal on Thursday, and not a moment too soon.  If this mid-Autumn’s “longest ever” 10-day traffic jam is any indication of how severe road congestion can be in China, there are only a few weeks before we may see another repeat, when Spring Festival – China’s most important holiday – begins around January 20.

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