Tax reductions on small-engine cars, subventions for clean car technology, subsidies for vehicle purchases in the countryside - China has adopted a legion of measures to try and perk up its car industry, which is suffering from the effects of the financial crisis. Objective: to boost sales and restructure the entire industry.

In contrast to the Americans who have injected billions of dollars into their car industry to save the nation's giant car makers, China has opted to support its car industry by encouraging its consumers to go out and buy more cars. On January 20, the government decided to cut the sales tax of new cars with a 1.6 l engine or smaller from 10 to 5 percent. This measure, aimed at stimulating the sales of small cars, seems to have had an immediate effect. In January, the sales of small cars rose by 19 percent from the previous month according to the Chinese Automobile Manufacturers Association. This rise in sales allowed China to overtake the US as the world's largest auto market in January 2009. During that period, a total of 735,000 vehicles were sold in China against 657,000 in the US. Another factor that could have contributed to the market dynamics in January was the Chinese New Year, which fell on the 26th, as it is traditionally a strong season for car sales.

The sales tax reductions on small cars should provide a perk for Chinese car manufacturers in particular: “Domestic manufacturers mostly focus on the production of automobiles with smaller engine power, and they benefit the most from the tax reduction policy," Time Magazine quotes Yao Jie, deputy secretary general of China Association of Automobile Manufacturers, as saying. According to Yao, Chinese car brands made up 26 percent of car sales last year, and in January 2009, their share rose to 30 percent. Chery Automobile Co, maker of the highly popular QQ compact car, registered the biggest rise of all, and went on to declare that it hoped to see a 18 percent rise in annual sales this year.

Beijing is also counting on campaigns to help boost sales. The plan to stimulate the industry includes a five-billion-yuan (574 millions euros) subvention package to encourage people in the country's rural regions to purchase cars between March and the end of the year, China Securities Journal says. Certain households in rural China will also be eligible for subventions to help replace their three-wheeled cars with small trucks or minivans with a 1.3 l engine. This move has prompted certain car makers such as Chang'an, China's top minivan producer, to take steps to expand their distribution networks and boost efforts to reach rural customers. But at this point it is still difficult to say whether rural households in China will be enticed by this opportunity.